Primus Weekly - 1st February

Hi Everyone,

The major topic of last week was retail investors versus Wall Street behemoths. In this David vs Goliath fight fortunes were made and lost, causing volatility in the equity markets. VIX, also known as the Fear Index, spiked to 37.2, the highest it has been since October 2020.

Retail trading really took off last year with the recent introduction of zero fees and access to the market through a number of brokers, such as Robinhood, TD Ameritrade and Interactive Brokers, to name a few. People who had been idle and receiving government support discovered discussion websites, such as Reddit, to get trading ideas and found a community looking to converse market views. Oftentimes contrarian views emerged that were viewed as irrational – such as buying shares or call options on Hertz, a car rental company that went bankrupt early 2020. As speculative as this market activity was perceived to be, it was allowed to continue. Until January, when Reddit subgroup Wallstreetbets made the headlines after its members started a buying frenzy of stocks that were considered to be distressed. Names such as Gamestop, Blackberry Inc, AMC Entertainment, and so on. WSB members had realized that institutional players had opened disproportionately large short positions against those names which opened an avenue for a short squeeze. What followed was quite baffling – large hedge funds exposed on the short side, were forced to close positions at 100% loss, causing U$ 13 billion AUM funds to seek a bailout. Humongous spike in share prices and subsequent falls caused ripple effects across the markets and Janet Yellen commented that she and her team are monitoring the situation. As a culmination, retail brokers who were facing the clients, restricted trading temporarily, or forced liquidated positions for those names. A number of lawsuits were filed against those firms on the basis of manipulating the market by not allowing trading of certain companies. Also, the Senate has called for an investigation on whether such restrictions were legitimate. We are certain to hear more of this for the weeks to come.

U.S. quarterly GDP was published last week. As expected, the economy grew by 4% on an annualized basis in the 4th quarter. 2020 total GDP shrank by 3.5% – the worst since WWII and the first since 2008, as published by WSJ. Retail sales weakened significantly in the 4th quarter, shrinking around 2.3%. The growth engine earlier in the year – goods spending – contracted. Spending on durable goods was flat. Notable shove came from residential fixed investment that was up 33.5% in Q4 (vs 63% in Q3). Ultra-low mortgage rates, as well as exodus of people leaving big cities due to COVID-19 set the stage in 2020 for the highest growth (+5.6%) in 14 years in existing home sales. Non-residential fixed investment was up 13.8% in Q4. It should also be noted that the median home price last year was U$ 300,000, Analysts expect U.S GDP to grow in 2021 around 4-5%, supported by additional U$900 billion fiscal spending that was approved late last year. U.S. debt to GDP ratio is currently near 130% (up from 108% a year ago), expected to grow to 133% by the end of 2021, according to the IMF.

S&P 500 and Nasdaq-100 were both in risk-off mode respectively losing -1.93% and -2.1%, at the back of Gamestop related volatility. Russell 2000 was down -1.6%. Gold was down 43 bps, while US dollar, measured as DXY, was up 38 bps. VIX exploded 51% to 33.1.

Have a great trading week ahead!

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In The Spotlight

DateCurrencyEventPrevious Consensus 
MondayEURGermany Retail Sales5.6%
MondayUSDISM Manufacturing PMI (Jan)60.760.0
TuesdayAUDIntererst Rate Decision & Statement0.1%0.1%
WednesdayEUREuro Area CPI (Jan YoY)-1.9%-2.2%
WednesdayUSDADP Employment Change (Jan)-123.0 *49.0 *
WednesdayUSDISM Services PMI (Jan)57.257.0
ThursdayGBPBoE Interest Rate Decision & Monetary Policy Statement0.1%0.1%
FridayUSDNon-farm Payrolls (Jan)-140.0 *85.0 *

* In USD millions

  • Euro Area CPI (Jan YoY)

Inflation measures the rise in consumer prices in an economy over a certain period of time. Higher inflation means that consumer

prices have grown compared to the previous period. Higher than expected rate may be both positive or negative for EUR as the

market does not like inflation expectations too far off from consensus. Generally, both high and negative inflation are bearish for currency, while positive and low inflation, in line with expectations, is bullish


  • ISM Manufacturing PMI

Purchasing Managers’ Index measures the sentiment for business activity in the U.S. This is survey based and considered as a leading indicator. Higher than expected print is generally bullish for USD, while lower than expected is bearish.

Market Sentiment

EURUSD pair has been consolidating with short-term moving averages being roped. Price has been forced lower by 8- and 21-day Moving Averages. Price is still well above 200-day Moving Average of 1.66660, indicating that long-term bullish momentum is intact. RSI and Stochastic are both neutral, respectively near 48.0 and 37.4. ADX of 16.2 does not give quality signal, while DMI- of 18.4 dominates DMI+ of 13.9 – also not giving quality signal. Resistance level is near 1.21520, while support is near 1.21040.

Support: 1.21040

Resistance: 1.21520

GBPUSD has exhibiting a clear bullish momentum, with 8-day Moving Average offering support. Momentum indicators are stacked in a bullish momentum (8 > 21 > 34 > 50 > 100 > 200). RSI is still neutral near 59.8 and Slow Stochastic is overbought near 82.5. ADX of 11.2, gives a weak signal quality. DMI+ and DMI- are both near 16, hence not indicating a clear trend.

Support: 1.36800

Resistance: 1.37500

USDJPY has broken upper Bollinger Band resistance is now trading near 2.5-month highs of 104.70. Momentum indicators have turned bullish short-term, while 200-day MA is still bearish. RSI of 64.2 is neutral, while Stochastic of 74.3 is also neutral but rising. ADX of 16.8 does not show strength in the trend. However, DMI+ of 28.3 dominates DMI- of 12.1, signaling bullish momentum.

Support: 104.50

Resistance: 104.95

XAUUSD is attempting to break 200-day Moving Average resistance once again, pushing through short-term Moving Average resistance levels as well, at the back of short squeeze on silver. Momentum indicators do not indicate a clear trend. RSI of 50 and Stochastic of 53.4 are both neutral. ADX of 19.9 is stable and not signaling energy in the momentum, while DMI- of 23.5 slightly dominates DMI+ of 18.1.

Support: 1,846.10

Resistance: 1,871.70

Kaia Parv, CFA, is an experienced Portfolio and Investment Manager with exposure to both public and private markets. Before joining FXPRIMUS, Kaia was a Senior Investment Associate at EFA Group and a Vice President in Bank of America Merrill Lynch.

Any opinions, news, research, analyses, prices or other information contained here are provided as general market commentary and do not constitute investment advice. FXPRIMUS does not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

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