8 Macro Charts traders need to have on their radar
You would be forgiven for thinking you’re on a rollercoaster if you’ve been trading the dollar at the moment. After Wednesday’s much stronger than expected CPI inflation numbers the greenback has retraced its post NFP losses. Essentially, the dollar strength we saw was the market recalibrating it’s views on the timeline for rate hikes – this could be seen in the eurodollar futures market with the December 2022 contract tightening. The market is clearly still on the fence about whether inflation will be transitory or sustained and nervous that the Fed could have to tighten policy sooner than guidance. However, one needs to be careful placing too much weight on standalone jobs and inflation reports. The market also needs to remember that given the Fed’s nonchalance towards inflation, due to it being “transitory” in their eyes, jobs take primacy and until we see a string of strong beats then taper talk will be pushed further out. A rebound in real yields and nominal yields are also providing a bid for the dollar. Combine this with the risk-off moves we’ve seen across markets, as evidenced by falling equity markets and a rising VIX index, then you can see why the dollar has been slightly firmer. The 10-year bond auction was received well by the market despite those strong inflation readings, we also got solid PPI data out yesterday – keeping inflation front and centre on traders’ minds. Initial jobless claims came in below expectations, now looking to continue its trend below 500k. Just released retail sales missed by 1 percentage point MoM (important to remember the large revision to last month’s number) and has deflated bullish dollar price action into the weekend.
Price has rolled over from the 90.8 previous support now turned resistance and is hovering around the low 90.3 level. 21-day EMA and the uptrend line is acting as resistance for the time being and capping gains. The RSI was marching higher, but now looks to be rolling over around the 40 level. There is some minor support around the 90.3 level which may be one to watch as we go into the weekend. Below that the 90 level is major support. The 50-day SMA is tilting slightly to the downside when Wednesday’s bullish candle may have given some hope for a golden cross above the 200-day SMA.
It’s been a quiet week for the single currency with the only notable developments being the strong ZEW Economic Sentiment Index release for Germany, coming in much better than expectations. This was offset a tad by slightly softer euro area wide industrial production. German Bund yields continuing higher have also been narrowing the interest rate differential with US treasuries helping the euro keep this usually bearish factor in check. The ECB minutes didn’t throw any curveballs at the market either without any hints on tapering. Vaccination rates have been chugging along nicely and if there are no hitches the deployment of the EU recovery fund should be fairly soon.
EURUSD has peaked its head above the downtrend line around the 1.212 area again on the back of dollar weakness. Price now finds itself slightly above the 21-day EMA as well as the 1.205 horizontal support. Speaking of moving averages the 50-day SMA looks to be clinging on for dear life to stay above the 200-day SMA, preventing a death cross from occurring (typically bearish). The RSI bounced right off the 52 level and is marching higher. The obvious price target to the upside would be the previous May 11 high’s of 1.218. On the downside the 1.205 remains a level of support.
The Pound has unwound some of its gains, but seems to be holding the 1.40 level. The higher move we saw in sterling on Monday was a result of the SNP falling just short of a majority, dampening concerns slightly about independence – although the support of the pro-independence Greens could push them over the line. The more important question is how would it play out if the SNP and Greens pursued it. Boris Johnson has been very clear he’d block it and Nicola Sturgeon has said she’d try go through the courts potentially. Either way this is still a long way away. Although, it seemed all but certain we got confirmation that the 3rd phase of removing restrictions will take place on Monday. We also heard another potential bullish factor for the pound, with the UK Health Minister alluding to a scenario whereby robust vaccination and Covid-19 data could accelerate the reopening of the economy. Although, GDP numbers on Wednesday weren’t massive beats, it solidifies the positive sentiment towards the UK economy and keeps the narrative alive. On the geopolitical front, the fishing dispute in Jersey between the French and UK has now seen the French threaten to block access to Europe for UK financial firms. For now this hasn’t dented pound optimism, but issues like this and the Northern Ireland Protocol have the potential to flare up and could weigh on sterling crosses. Speaking of Northern Ireland we should hear by around 5pm the new leader for the DUP, whoever it is, they will take a more hard-line approach to the protocol, which could inflame tensions more between the UK and EU.
Price has finally overcome the 1.40 handle and holding this level. The RSI has also pierced the 53 level comfortably and is now likely to move higher closer to overbought territory. Price is well supported by the 21-day EMA and the horizontal dotted line around 1.40. The small triangle pattern which appeared was coiling price like a spring and we saw a strong breakout through the top of the structure as a result. The initial price target to the upside would be 1.415 just below the lower line of the ascending price channel.
No important domestic data for the yen to contend with over this week and again this cross continues to be driven by the movement in the US treasury market. US 10-year yields breached the key 1.7% level, but have softened slightly.
Price has rolled over as it pushed up against the downtrend line in place from November 2018. There is support around the 109 level as well as the 50-day SMA and 21-day EMA. The 21-day EMA was very close to crossing above the 50-day SMA, but weaker price action to today has stalled this from happening. The RSI has also topped out at 60 (prior price rallies resistance) and looks to be heading lower.
Excitement about AUDUSD breaking out of its range resistance (0.78), have been pared back as price bumbles in the mid 0.77 region. There are multiple moving parts driving this bearish price action. 1) A stronger dollar 2) Weaker equity markets souring risk sentiment to high beta currencies like AUD 3) Softer commodity complex due to China wanting to try and cap price appreciation of the inputs necessary for their economic recovery. Whether they can prevent the strong momentum in the commodity space is questionable. 4) S&P rating agency stating that further spending could lead to Australia losing its AAA rating. Although, it’s not all bad news for the Aussie, we had a strong uplift in NAB business sentiment and the government has agreed to purchase 25 million doses of the Moderna vaccine as well as trying to facilitate local manufacturing capabilities. Tensions between Australian and China haven’t featured on the radar this week, but is likely to remain an important factor for this cross going forward.
Price has been moving sideways in a wide range (0.75 – 0.78) from the beginning of this year. There was a brief overshoot of the 0.78 resistance to 0.79 on Monday, but price faltered from there and is now back in the range. The 21-day EMA remains above the 50-day SMA supporting short term momentum. The 50-day SMA has been providing dynamic support to price of late. The RSI is just below the 55 level which marked previous price rallies close to the 0.78 resistance, however, looks to be trying to curl up higher towards the 55 level. I still like the range play – looking to potentially enter longs and shorts at range support (0.75) and resistance (0.78) respectively, instead of looking for big breakout moves.
Although Gold gets the label of being an inflation hedge, after the strong inflation number out from the US on Wednesday we actually saw the yellow metal lose some of its shine. This was due to higher yields and a stronger dollar, as the theme of tapering reared its head again. Various Fed speakers quelled fears by emphasizing the transitory nature of the inflation data release. The dip seems to have been bought as gold now eyes the top of its descending channel trendline. One other factor which could see a bid in gold is the tensions between Israel and Palestine if other countries were to get dragged into the fray. Risk-off moves expressed through lower equity indices and higher VIX readings could also be a tailwind for gold.
Gold is now well above the 21-day EMA and 50-day SMA. The RSI is charging higher towards overbought territory. Price pushed through some topside resistance around the $1825 area. There is plenty resistance now above here which could prove difficult for gold to overcome – 200-day SMA, upper trend line of the descending channel and the round number of $1850. If there was a large move through here you could see some stops definitely being triggered and shorts covered.
Crude has struggled to keep up its price momentum since clearing the $67.5 level. The biggest story in oil this week was the hacking of the Colonial Pipeline in the US, which caused a chokepoint in the delivery of oil supply. That has now resolved and this premium has been unwound, removing a temporary price support for oil. We had an interesting statement from The International Energy Agency which stated the supply glut has cleared despite demand being held back due to virus situation in India. Although, no oil facilities have been hit due to tensions between Israel and Gaza there is the potential for it to escalate with other oil producing countries such as Iran becoming involved. News flow on talks between the US and Iran on the nuclear deal have been very quiet, however, earlier in the week a US Coast Guard ship fired 30 warning shots after 13 IRGC boats approached a US Naval fleet in the Strait of Hormuz. Weekly inventory data didn’t help either as we saw a much smaller draw than expected.
Price has got a pep in its step today on the back of firmer risk-sentiment and a weaker dollar. Both shorter-term moving averages – 21-day EMA and 50-day SMA are slightly tilted up. The 21-day EMA has crossed above the 50-day SMA. The RSI dipped briefly below the key 53 level but has now bounced and turned northwards to try and move higher. It will need to remain above this “line in the sand” to continue its ascent higher. We got all the way up to the key psychological level of $70, which is proving sticky. Price will need to take out this short term high to continue pushing higher. From there the March 8 highs of $71.37 come back into play. To the downside I’d monitor support around $67.5.
Crypto has been under a lot of pressure this week after dismal headline news. Firstly, Elon Musk tweeted that Tesla have decided to stop accepting Bitcoin as payment given its very significant energy usage and impact on the environment not something he wanted to associate with. Further to this, Bloomberg stated that Binance was being investigated by the Justice Department as well as tax authorities the IRS over money laundering and tax related issues. To top it off regulators may also be looking into crypto’s electricity consumption. When it rains it pours. Altcoins seem to be benefiting at Bitcoin’s expense too, as evidence by the soaring ETH/BTC ration. Ethereum is also far superior to Bitcoin on an ESG basis and could be helping the alternative cryptocurrency move higher. One interesting event which took place this week was Cryptocurrencies are now larger than the entire supply of US dollars in circulation.
Price action has been in the doldrums this week as the 21-day EMA took a strong move lower. The RSI is quite far below the key 48 level and needs to push above here if price is to have a go at the $59.5k resistance level. Given that price briefly dipped below the $50.3k support and is now trying to get back above this support, the first price target from here becomes $53k (former support).