Primus Weekly - 25th January

Hi Everyone,

The world seems to be slightly more normal and pleasantly boring now that president Biden and vice-president Harris have taken office. The inauguration ceremony took place with no major escalations as Washington D.C. and other major U.S cities were heavily guarded.

 

Biden signed a dozen of executive orders hours after his inauguration, reversing a number of Trump’s policies. The heavily criticized ban on Muslim countries was reversed, as well as termination of DACA (Deferred Action for Childhood Arrivals) program. Biden also signed an order to rejoin World Health Organization and Paris climate accords. Addressing climate change has been a key tenant of Biden-Harris platform with significant investment expected to go green energy during the second half of 2021. ACES ETF, that tracks renewables and related industries, gained 136% in 2020, with top holdings Plug Power Inc, Ballard Power Systems, Enphase Energy and Tesla Inc. On top of the renewable sector, industrial and manufacturing companies ought to benefit as providers of materials and machinery. Industrials, measured by XLI ETF, were up 8.6% in 2020 with significant gains added during the month of November (+16%). The top 3 holdings of XLI are Union Pacific Corporation, Honeywell International and United Parcel Service. Biden’s focus is also clearly slowing the spread of COVID-19 which is addressed by requiring social distancing and wearing masks on all federal employees and property. Also, masks are required for interstate travel. Lastly, Biden extended loan forbearance deadlines for mortgages and student loans. This extension should give individuals who struggle with repayments a bit of more breathing room, while supporting consumer confidence. However, looking at the latest retail spending data (December -1.4% and January -0.7% MoM) we can be certain that consumers are more likely to save than go shopping.

 

The United Kingdom is struggling with the third national lockdown that may last into summer, according to Prime Minister Boris Johnson. The absolute restriction on movement and non-essential commercial activity has translated into a sharp drop in economic activity, as witnessed by November GDP data of -2.6% MoM basis, compared to +0.6% the month before. The data is better than the -5.7% the consensus has expected but looks dire nevertheless. Unemployment has held relatively stable near 4.9% in October. November data will be released on Tuesday and is expected to climb to 5.1%. U.K. economy is now facing double dip recession, defined by negative GDP growth for two consecutive periods. The U.K. economy consists mostly of services sector which contributes 71% to the GDP. With national lockdown the services, such as pubs and hairdressers, are clearly severely impacted, as reported by the Guardian. Services sector shrank 3.4% in November, while industrial production fell only 0.1%. The contribution towards GDP from industrial sector around 17%. Despite the headwinds GBPUSD is marching higher. The Cable is currently trading near 1.37000, levels last seen in May 2018. The momentum is supported by technicals which are showing signs of fatigue. Weekly chart indicates that DMI+ as well as ADX are decreasing, while Stochastic signals overbought levels. Major resistance level is near 1.4000 while a strong floor seems to have established near 1.3500 levels.

 

S&P500 and Nasdaq100 were both in risk-on mode respectively gaining 1.94% and 4.4% Russell200, however, posted another strong gain of 2.15%. Gold was up 1.49%, while US dollar, measured as DXY, was down 54 bps.

Have a great trading week ahead!

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In The Spotlight

 

DateCurrencyEventPrevious Consensus 
TuesdayGBPILO Unemployment Rate (3M)4.9%5.1%
WednesdayAUDCPI (QoQ)1.6%1.5%
WednesdayUSDDurable Goods Orders1.0%0.9%
WednesdayUSDFed Interest Rate Decision and Monetary Policy Statement0.25%0.25%
ThursdayUSDGDP Annualized33.4%4.4%
ThursdayUSDInitial Jobless Claims0.9 *0.9 *
ThursdayUSDNew Home Sales (MoM)0.84 *0.88 *
FridayEURGerman GDP (QoQ)8.5%

* In USD millions

Impact

• U.S. Gross Domestic Product

GDP data shows the monetary value of all the goods and services produced in the U.S. Economy is expected to contract -3.6% in 2020 and expand 3.3% in 2021. A negative number indicates a contraction of economic activity while a positive number shows an expansion. A better than expected GDP growth is generally positive for USD, whilst a print below expectations tends to be negative.

• U.S. New Home Sales
Housing and related services account for around 15% of U.S. GDP, making new homes sales an important indicator about the health of the economy. New home sales reached levels 13-year high during the second half of 2020, supported by low mortgage rates and de-urbanization. Higher than expected print is generally bullish for USD, while lower than expected is bearish.

Market Sentiment

EURUSD lost some of its gains and retreated to 50-day Moving Average level. The price is attempting to march higher once again, finding support near 8-day and 21-day Moving Average levels. Momentum indicators are bullish. RSI of 52.2 is currently neutral and stable, while Slow Stochastic is 32.0 and rising sharply. ADX of 17.2 does not give a quality signal, while DMI+ of 18.3 and DMI- of 16.1 are also offering low signal quality.

Support: 1.21500
Resistance: 1.22050

The pair is attempting to break swing highs, trading near 2.5-year highs. Price has found strong support near 8-day Moving Average, while being stopped by upper Bollinger Band resistance. Moving Averages are stacked in a bullish manner (8 > 21 > 34 > 50 > 100 > 200), indicating a strong bullish momentum. RSI of 59.3 is neutral while Stochastic of 81.6 is overbought. ADX of 12.3 gives no signal, while ADX of 23.3 and DMI- of 16.4 also offer little guidance. The pair has been trading in a regression channel since 23 Sept lows

Support: 1.36500
Resistance: 1.37300

USDJPY is consolidating with short-term Moving Averages being roped. Price has found support near 8- and 21-day Moving Average level near 103.70, while 50-day Moving Average has pushed the price lower. Long-term momentum is bearish with 200-day Moving Average above the price. RSI of 50.5 and Stochastic of 56.7 are both neutral. ADX of 11.6, DMI+ of 18.8 and DMI- of 15.4 offer low quality signal.

Support: 103.70
Resistance: 103.90

XAUUSD is trading below all short-term Moving Averages but has found support near 200-day Moving Average. Short-term momentum indicators are hence signaling bearish momentum. RSI is 46.6 and Stochastic 37.7 – both neutral. ADX of 20.5 does not offer quality signal but DMI- of 28.5 dominating DMI- of 18.5 signals bearish momentum.

Support: 1,846.20
Resistance: 1,869.90

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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