Month: October 2021

Treasury First– Mid Week Macro Report 20 October 2021

To say the market is in a transitional period is a slight understatement. Global Central Banks are actively acting against the rise in inflation as interest rise or are set to rise. We are in the midst of a Global energy crisis as the northern hemisphere enters the winter months. Supply chain bottlenecks are filtering through into every aspect of the global economy. Covid-19, despite the rollout of a successful vaccination campaign, continues to weigh heavily on our global health systems. All these cross winds make clear directional plays within the financial markets very tricky at present. They do however create volatility, which in turn creates opportunity, with many investors believing these next few months will be the start of a wider, more drawn-out trend in the financial markets. Something that has been difficult to come by in 2021 so far. So these are indeed exciting times for investors and traders. For us the key driver over the next few months and what will set the broader trend in all asset classes is the US Fixed Income markets. Yields are back rallying following their pause during the summer months as   the broader markets are focussing in on the growing risk of inflation rising across the globe. The rise in energy and commodity prices in particular has been joined by increases in consumer goods prices, particularly food stuffs. Shortages are plaguing many retailers and earnings are expected to highlight supply chain issues and bottlenecks along with production difficulties and labour shortages. In saying that, 80% of the US corporates that have released their 3^rd Q earnings have beaten the market’s expectations. The central banks, in particular the Bank of England, Norges Bank and the Central Bank of New Zealand, are beginning to worry that inflations is growing out of hand, coupled with a worker shortage across key economic sectors and in light of this have or are about to raise interest rates. Economic data will be closely watched in the days and weeks ahead and the markets are also factoring in a taper in asset purchases programs by the US Fed. As such markets are in a transition period with external and internal market dynamics at play and ultimately plenty of opportunities.

AUDUSD

The AUDUSD FX pair is trading at 0.7497 after breaking above the 0.7475 level as resistance. Price tested resistance at the 0.7500 and rejected lower. The pair is trending higher after its break out around the 50 and 100 SMA but is potentially overstretched as it approaches the 200 SMA at 0.7530 as indicated by the stochastic. A confirmed breakout above this level and the 200 SMA, opens the way to resistance at the 0.7618 area followed by 0.7700 and 0.7777. Alternatively a move down under 0.7437 opens the way to support at 0.7350 and the 100SMA. This area of support is followed by further supports at 0.7300 and 0.7150.

Wall St 30 Index

The Wall St 30 Index has consolidated over recent months and is now testing the resistance area of the last higher high cluster around 35500.00. The stochastic is flashing an overbought warning and the 33500.00 area of support is corresponding to the neckline for a head and shoulders/double top pattern. A selloff below that area would trigger the pattern with a target around 31500.00. The pattern would become invalid with a move back above 35650.00 and a push over 35800.00. If the market breaks above the resistance area at 36000.00, the way opens potential for a rally toward 36300.00. Alternatively, a move back below 35000.00 signals a test on the support at 50 and 100 SMAs around 34850.00 The 34110.00 area then becomes supportive followed by the 34000.00 round number level. Below this level the 33500.00 area would be used as support followed by 33000.00.

EURUSD

The EURUSD is showing how the price has sold off to test support at 1.1525 to start the month. With price now trading at 1.1640, resistance can be seen at 1.1670 and 50 SMA at 1.1705, while support may be found at 1.1600. The 1.1800 area is expected to act as resistance in the short term, followed by 1.1900 as it relates to the lower high and the 200 SMA. A break above this level would find resistance at the 1.2000 area. A continued move higher finds more resistance around the 1.2265. A breakout from there opens the way to 1.2347. Alternatively a move back down under 1.1600 would find supports at 1.1525 and 1.1500. A loss of this level extends the control of sellers and opens the way to a test on 1.1400 area followed by 1.1300 and 1.1260.

Treasury First – Mid Week Macro Report 07th October 2021

The markets have recovered well from their risk off environment that clouded the beginning of the week, as comments from Putin and US Oil Inventory data yesterday helped to calm nerves in the commodity space and a potential compromise on the Debt Ceiling in the US from McConnell – have given stocks a boast. The market as always has one eye on the rally in bond yields – global bond yields – as more and more Central Banks make that hawkish shift in their stance. There are a number of factors affecting the rise in yields such as inflation concerns, supply chain issues and rising commodity prices, alongside of course the US debt limit. Markets are also focussed on the tapering of asset purchase programmes that were launched in response to the Covid-19 outbreak last year and the longer term view on interest rates. The Reserve Bank of New Zealand raised rates to 0.5% from 0.25% on Wednesday as the country grapples with its worse Covid-19 outbreak to date. This was followed by a surprise interest hike by 40 bps by the National Bank of Poland yesterday afternoon – the global interest rate market is shifting and as we have pointed out many times on this report – this has huge implications for all financial asset classes.

Energy prices are continuing to rise and are driving global inflation higher as we head into the winter. This has been extremely evident in the UK of late, who is also being affected by a lack of workers across all sectors of the economy. With the shortfall of workers in the supply chain ahead of the busy Christmas season, the outlook for the UK remains tough and is expected to worsen unless the government take drastic action. However Prime Minister Johnson has denied that Britain is facing an economic crisis and dismissed the shortages as a “predictable consequence of emerging from the coronavirus pandemic” but said it was not his job to fix all the problems businesses face, and said he was not worried about rising energy prices and labour shortages.

We get US monthly employment figures out tomorrow – 1.30pm London time. Non-Farm Payrolls will be the key risk event for the markets this week and should set the tone for the remainder of Oct. Fed Chair Powell has already told the markets that the Fed will be watching tomorrow’s figures closely, however he did caveat this by suggesting that the bar is not high for tomorrow’s figures and therefore a slight miss to expectations should still keep the tapering process on track by the Fed for Nov. A beat tomorrow on the release and we should see US yields climb higher, equities get hit and the Dollar rally.

NZDUSD

The NZDUSD FX pair is trading at 0.6908 after breaking below the 0.7000 level as support and testing lower to the 0.6860 area last week. Price tested resistance at the 0.7170 area in September and rejected lower. The pair is pushing lower today after the RBNZ raised interest rates. Price is using the 0.6980 area as resistance in the short term. A confirmed breakout above this level and the 50 SMA, opens the way to resistance at the 0.7100 area and the 200 SMA. Alternatively a move back down under 0.6880 opens the way to support at 0.6800. This area of support is followed by further supports at 0.6700 and 0.6640.

UK 100 Index

The UK 100 Index has consolidated over recent months and is now testing the support area of the last higher low around 7000.00. The 6800.00 area of support is corresponding to the neckline for a head and shoulders pattern. A selloff below that area would trigger the pattern with a target around 6350.00. The pattern would become invalid with a move back above 7159.00 and a push over 7235.00. If the market breaks above the resistance area at 7076.00, the way opens back to the high at 7157.00. Alternatively, a move back below 6950.00 signals a test on the support at 6900.00 The 6855.00 area then becomes supportive followed by the 6800.00 round number level. Below this level the 6615.00 area would be used as support along with 6470.00 as a significant higher low.

Silver

The Silver chart is showing how the price has sold off to test support at 2142.00. With price now trading at 2230.00, resistance can be seen at 2275.00 and support at 2200.00. The 2314.00 area is expected to act as resistance in the short term as it relates to the lower high. A break above this level would find resistance ahead of 2485.00 lower high. A continued move higher finds more resistance around the 2600.00 and 2660.00. A breakout from there opens the way to 2875.00. Alternatively a move back down under 2200.00 would find supports at 2142.00 and 2100.00. A loss of this level extends the control of sellers and opens the way to a test on 2000.00 area.