• Gold picks up bids to reverse the previous day’s pullback from one-week top.
  • Powell tried to placate reflation fears, vaccine optimism prevails.
  • US stimulus gridlock, light calendar challenge the mood.
  • Powell 2.0, risk news will be the key to watch.

Gold keeps $1,800, currently around $1,805, while struggling to defy the previous day’s pullback from a one-week top during the initial Asian session on Wednesday. The yellow metal snapped the two-day winning streak amid the US dollar’s corrective pullback. However, the greenback’s failures to hold the recovery moves seem to favor the gold buyers.

Powell couldn’t placate bond bears…

Despite showing readiness to extend the bond purchase and flashing ‘enough’ advance signals before rolling back the easy money, Fed Chair Jerome Powell couldn’t tame the yields. The reason could be traced from the statements suggesting further expected upside in the inflation figures.

On the other hand, AstraZeneca’s latest comments suggest that the first real-world study of the covid-19 vaccine demonstrates a 94% reduction in hospitalizations. Elsewhere, the US policymakers are trying to progress on the much-awaited covid stimulus, but fail off-late, whereas the political tussle among the US-China and Washington-Tehran continues.

It should be noted that the surge in the Treasury yields takes money off the riskier assets, like equity and commodity off-late, which in turn challenge the gold buyers in case of the rising bond coupons.

Against this backdrop, S&P 500 Futures drop 0.20% after Wall Street benchmarks closed mixed for Tuesday.

Looking forward, the yellow metal traders will keep their eyes on the second Testimony of Fed’s Powell for clarification while updates on US coronavirus relief package and vaccines should offer extra catalysts to watch.

Technical analysis

A downward sloping trend line from January 06, currently around $1,813, precedes a 21-day SMA level of $1,818, to challenge short-term gold buyers. Though, fresh declines need validation from $1,785 to convince the yellow metal bears.

 

  • GBP/AUD completes the M-formation pattern to the target. 
  • There is now too much weekly support to contemplate fading the rally.

As per the prior analysis, GBP/AUD Price Analysis: Monitoring for bullish structure to target 38.2% Fibo, the price has indeed moved to the target area.

Prior analysis

GBP/AUD is in the hands of the bears but there are prospects of an upside correction according to the following analysis taken from a daily M-formation and managed from an hourly chart.

Daily chart

Live market

Daily chart

The daily chart is showing that the price is resisted at this juncture and could be due for a continuation to the downside. 

However, the weekly chart shows that the price is being supported and bound by weekly support and resistance:

Until the area is cleared, there is just as much likelihood that the pair can continue higher from this support area, especially given that the daily M-formation is a bullish pattern. 

  • GBP/USD marched above the 1.4100 level on Tuesday and is now up over 3% on the month.
  • Optimism over the UK’s vaccine rollout and reopening plans continues to boost GBP, but concerns the currency is becoming overbought are growing.

GBP/USD continued its upwards march on Tuesday and rallied confidently to the north of the 1.4100 mark for this first time since April 2018. As FX market volumes dip ahead of the start of Asia Pacific trade, the pair is consolidating just to the north of the 1.4100 level. As seemingly been the case more often than not this month, GBP again finished the session at the top of the G10 rankings, up 0.36% or about 50 pips.

Tuesday’s gains marked a fourth straight session in the green, during which time the pair has rallied from the mid-1.3800s to current levels nearly 250 pips higher. Out of the 17 trading session so far this month, GBP/USD has finished higher 13 times and has rallied north of 3% from the mid-1.3700s.

Driving the day

Sterling’s confident performance on Tuesday came despite a softish monthly labour market report – market participants haven’t seen these labour market updates from the UK Office of National Statistics particularly informative over the last few months given that the UK government’s furlough scheme, in which the government subsidises employee wages so long as they are kept on the company’s payroll, distorts the data.

More important for sterling are reports that UK Finance Minister Rishi Sunak is likely to extend the furlough scheme again until the end of May, after which it is hoped that most Covid-19 restrictions will have been lifted. But that was seemingly not the main focus of the day, according to traders, many of whom suggested that gains in sterling were down to continued optimism over the UK’s vaccine rollout and reopening plan. Reports from the Telegraph suggesting that the rate at which the UK government eases lockdown restrictions could be accelerated if real-world data on the effectiveness of vaccines is better than expected is likely to support this GBP bullish narrative.

Some market commentators also point to sterling supportive M&A news; UK insurance company Aviva confirmed on Tuesday the sale of its French unit to France’s Aema Groupe for EUR 3.2B (which equates to £2.7B).

Note that more and more FX strategists are ringing alarm bells about how GBP might be entering overbought territory. After all, GBP/USD is up nearly 2% in four days. Some profit-taking might be in order.

 

 

  • US stocks recovered aggressively into the close from an early session rout that saw the Nasdaq 100 as much as 3.5%.
  • The S&P 500 bounced at the 3800 level, with reassurance of continue accommodation and stimulus headlines helping.

It was the definition of a turnaround Tuesday for US equity markets; the Nasdaq 100 index nearly managed to recovery back to flat and closed the session with losses of just 0.2%, compared to intra-day worst levels where it was more than 3.5% lower. The S&P 500 recovered from intra-day losses of around 1.8% to finish the session with gains of about 0.2% (thus snapping a five-day losing streak), having bounced at 3800, while the Dow closed up 0.1%.

The initial downside was driven by growth stocks, with the steep sell-off observed in the likes of Tesla and Apple, as well as in the chipmaking sector, as investors instead bought into value stocks (such as banks) and other stocks that stand to benefit from economic reopening. In the end, the S&P 500 value index rose 0.45% versus a 0.17% drop in the S&P 500 growth index. Apple appears to have been helped from lows on comments from CEO Tim Cook, who said the company plans to increase its annual dividend.

In terms of the S&P 500 GICS sectors; energy led the way, up 1.61% on the day despite comparatively modest gains in crude oil markets, while consumer discretionary lagged, ending the session down 0.5%. Downside in Tesla can almost exclusively be to blame, with downside in Bitcoin dragging TSLA shares with it (after Tesla announced a $1.5B investment in bitcoin just over two weeks ago).

Driving the day

Dip buying equity market bulls were given the best opportunity that they had seen in weeks on Tuesday and it very much looks like they took advantage off it. Jitter about the US economy overheating and prompting a Fed monetary policy tightening response, jitters about higher US bond yields and jitters about frothy valuations were all thrown around as explanations for the early downside on Tuesday.

While it is difficult to pinpoint exactly what caused the pre-market/early US trading session sell-off, a number of positive developments can be pointed to as reasons why stocks managed to recovery so aggressively from lows;

1) Fed Chair Powell might not have come across as overly concerned about the recent rise in US bond yields, but he maintained his resolutely dovish stance on the path of Fed policy going forward; the Fed wants to see substantial progress towards its inflation and employment goals before tapering QE and wants to definitively reach its dual mandate before hiking interest rates. Powell made it clear to the market that the Fed is still a long way from achieving these goals, thus reassuring investors that easy policy is here to stay for the foreseeable future. When asked what his message to markets is, he referred to the fact that unemployment is currently at 10% (i.e. to impress to markets that the Fed is still a long way from its goals and thus a long way from tightening).

2) US President Joe Biden pumped stimulus hopes in the final hours of trade, saying he thinks his stimulus bill is going to get passed by “a lot”. Note that the House is likely to soon vote on the President’s $1.9T “rescue” package and is expected to pass it and send it to the Senate. Congressional leaders hope to pass the bill into law by mid-March. It also seems as though the Democrats will push to pass President Biden’s likely multi-trillion “recovery” package, which is focused on infrastructure investment, in the subsequent months. According to political commentators, infrastructure spending commands decent bipartisan support.

3) News that a bipartisan group of lawmakers is planning on meeting with Biden on Wednesday to discuss supply chain issues, including with semiconductor chips, appeared to boost the lagging semiconductor sector, which had been dragging the major US indices down.

More broadly, the macro backdrop for the US economy remains bullish; recent vaccine supply news has been positive and implies that the US is on course to vaccinate all adults by the Summer, meaning a more confident and aggressive reopening is likely possible than what might otherwise have been expected. Amid this backdrop, it is understandable that equity investors continue to gobble up dips.

Credit Suisse ups S&P 500 target

Credit Suisse raised their year-end target for the S&P 500 to 4,300, the second upgrade to their target already this year. The bank noted that with 90% of Q4 earnings reported for S&P 500 companies and results beating estimates by a wide margin, the bank had to increase its full-year 2020 EPS estimate to $142.50 from $140, while increasing its forecast for 2021 EPS to $185 from $175. In terms of the logic behind the upgrade to 2021 EPS, Credit Suisse cited a reopening economy, an abundance of fiscal stimulus and continued Fed accommodation. “It is no surprise that 2021 GDP is expected to run hotter than at any time in the past 35 years”, the banks noted.

  • Silver keeps bounces off 100-bar SMA following a pullback from channel resistance.
  • Receding MACD strength directs sellers towards 200-bar SMA, channel’s lower line.
  • Five-week-old support line adds to the downside filters.

Silver wavers in a range above $27.50, currently around $27.65, while trying to defend the bulls amid the initial Asian session on Wednesday. The white metal snapped a two-day winning streak while easing from the highest levels last seen on February 02 during the previous day.

In doing so, the commodity prices stepped back from the upper line of an ascending trend channel formations established since February 04. However, the 100-bar SMA offered the latest bounce to the quote.

It should, however, be noted that the corrective pullback lacks momentum, as the MACD teases sellers, which in turn indicates further weakness by the bullion.

As a result, silver bears will wait for a clear downside break of 100-bar SMA, at $27.22 now, to revisit the 200-bar SMA level of $26.44. Though, the support line of the stated channel and over a month-old rising trend line, respectively around $26.30 and $25.90, will challenge the precious metal’s further downside.

Meanwhile, the stated channel pattern’s resistance line, at $28.17 now, will eye for the $28.40 and the $29.00 before directing the bulls towards the monthly top above $30.00.

Overall, silver is likely to witness pullback in its short-term upward trajectory.

Silver four-hour chart

Trend: Pullback expected

 

  • WTI extends pullback from multi-month top after downbeat private inventory survey.
  • API Weekly Crude Oil Stock grew beyond -5.8M for the week ended on February 19.
  • US dollar weakness battles reflection fears and a lack of major data/events to tame the oil sellers.

WTI drops from $61.89 to $61.06, currently around $61.20, at the end of Tuesday’s settlement, early Wednesday morning in Asia. The oil benchmark recently responded to the industry stockpile report unveiled by the American Petroleum Institute (API). However, the greenback bears join cautious optimism towards the global recovery and an absence of normal supply flow to back the oil bulls.

As per the latest weekly inventory report, API stockpiles jumped +1.026 million barrels versus the previous draw of 5.8 million barrels during the period ended on February 19.

Although the commodity prices dropped following the bearish stockpile data, bulls aren’t gone home as the US-Iran tussle joins sustained abnormal oil supplies from the Persian Gulf.

Iran’s Supreme Leader Ayatollah Ali Khamenei said, per New York Post, during the week that Tehran would not succumb to pressure from the United States on any matter. Washington and Tehran recently discuss the detention of Americans by the Gulf country as well as the nuclear deal amid the new government on Capitol Hill.

Elsewhere, production from Texas is yet to recover the losses marked during the latest freeze. The same join on-going output cuts from Saudi Arabia, Libya and Russia to help the energy buyers.

It’s worth mentioning that the US dollar’s weakness, currently near the early January levels, also helps the oil benchmark as well as the hopes of the economic recovery amid unlock announcements from key players. Furthermore, Fed Chair Jerome Powell’s semi-annual testimony favored expectations of further economic strength while also turned down the reflation fears suggesting the Fed’s readiness to do whatever necessary.

Looking forward, oil traders await details from Energy Information Administration (EIA) for fresh impulse. The official inventory report, up for publishing around 15:30 GMT, is likely to mark a reduction in the stockpile draw from -7.258 million barrels to -5.372 million barrels during the week ended on February 19. Also likely to direction oil traders will be the second season of the Fed’s Chair Powell.

Technical analysis

Failures to stay strong beyond $62.00 tease counter-trend traders to eye the monthly support line near $59.70. However, the $60.00 can also raise bars for the WTI sellers. Meanwhile, the $63.00 and previous yearly high surrounding $65.45 can challenge the oil buyers above $62.00.

 

Following his virtual chit-chat on trade and climate with US President Joe Biden, Canadian Prime Minister (PM) Justin Trudeau struck statements suggesting a fresh start to the US-Canada trade relations.

After saying, “It’s great to see you,” the Canadian leader added Canada is “really excited” to be working with the US again.

In a response to the cordial message from Canada’s Trudeau, US President Biden started his speech by saying “I look forward to seeing you in person in the future”

Market implications…

Following the news, USD/CAD extends corrective pulback from 1.2579 to currently around 1.2595 during the initial Wednesday morning in Asia.