The market mood has improved after another down day in stocks as US yields are off the highs. Fears of inflation boost commodities and commodity currencies while Bitcoin dives in choppy trading. All eyes are on Fed Chair Powell’s testimony.
After American shares retreated again, S&P 500 futures are rising and the benchmark ten-year bond yields are below their peak of 1.40%. The US dollar is on the back foot with GBP/USD eyeing 1.41 and EUR/USD moving above 1.2150.
Commodity currencies experiencing more substantial moves, with AUD/USD topping 0.79, NZD/USD above 0.73, and USD/CAD dipping under 1.26. The loonie is benefitting from a fresh increase in oil prices, with WTI changing hands above $62 despite a recovery in US oil output, following the “deep freeze” storm.
Jerome Powell, Chairman of the Federal Reserve, is set to testify before Congress amid a dilemma – while higher bond yields represent the “reflation trade” and a return to growth, there is also a risk of overheating, as already expressed in commodity prices. Powell will try to navigate between causing fear of removing stimulus too quickly and doing too much.
Christine Lagarde, President of the European Central Bank said she “closely monitoring the evolution of longer-term nominal bond yields,” signaling the Frankfurt-based institution is ready to step in and lower returns on debt.
Gold is rising, with XAU/USD recapturing the $1,800 level. A weaker dollar and demand in India are underpinning the price of the precious metal.
Bitcoin tumbled down some $10,000 on Monday to well below $50,000 but recovered quickly. A significant liquidation was blamed for the fall, and BTC/USD has since recovered to around the $50,000 mark.
“USD/JPY has recently failed at the 55-week ma at 106.15. In this vicinity is also the top of the short-term channel at 106.45 on Tuesday, and the market has slid back to the base of the channel at 104.85. The January peak lies at 104.40 and these two supports should ideally hold the downside.”
“The January high lies at 104.40 and this guards the 103.33, the 21st January low.”
“In order to adopt a more outright positive stance longer-term, the market will need to regain the 55-week ma and recent high at 106.15/23 on a closing basis. Note above the 55-week ma would target the 200-week ma at 109.06.”
24-hour view: “We highlighted yesterday that GBP ‘could break 1.4050 but 1.4100 is likely out of reach for now’. Our view was not wrong as GBP rose to 1.4086. While overbought, the current advance has scope to test 1.4100 first before a pullback can be expected. For today, GBP is not expected to challenge the next resistance at 1.4150. On the downside, a break of 1.4010 would indicate the current upward pressure has eased (minor support is at 1.4035).”
Next 1-3 weeks: “Yesterday (22 Feb, spot t 1.4030), we indicated that ‘upward momentum remains strong and GBP could advance further to 1.4100’. GBP subsequently rose to 1.4086 and there is no change in our view. Looking ahead, a clear break of 1.4100 would shift the focus to 1.4150. On the downside, a break of 1.3940 (‘strong support’ level was at 1.3920 yesterday) would indicate that the positive phase in GBP that started about 2 weeks ago has run its course.”
The Technical Confluences Indicator shows that gold is eyeing $1820/22 resistance, as it extends its recovery. That level is the confluence of the SMA21 one-day, pivot point one-day R1 and pivot point one-week R1.
A sustained move above the latter could expose the previous week high of $1827. The next relevant barrier is aligned at $1840, the Fibonacci 23.6% one-month.
On the flipside, the immediate cushion is seen at $1803, the intersection of the previous month low, SMA50 four-hour and Fibonacci 61.8% one-week.
The next relevant support awaits at $1790, the confluence of the SMA20015-mins, SMA50 one-hour and pivot point one-day S1.
Further south, the convergence of the Fibonacci 23.6% one-week and pivot point one-month S1 at $1778 could likely challenge the bearish commitments.
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