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AUD/USD hits 0.8000 for the first time in over three years

The aussie has hit the key milestone, what’s next?

AUD/USD W1 25-02

AUD/USD is extending gains on the day as the dollar remains pressured, with the pair now touching above 0.8000 for the first time since 2 February 2018.
This is one that has been coming since the latter stages of last year but I would argue that it is playing out in a much quicker timeframe than I would have anticipated.
Granted, the commodities rally and latest round of dollar weakness is part and parcel contributing to the surge higher since the end of last week but this has been a truly remarkable recovery in AUD/USD from the depths of the pandemic lows last year.
As price hits the key milestone, it puts into focus the 2017 and 2018 highs around 0.8125-36 – at least from a technical perspective.
However, now that we’re here, I would argue that the RBA will be more actively watching price levels and verbally intervening moving forward.
That said, I’m quite doubtful of their abilities to pin down the currency so long as the market landscape and fundamentals continue to play out as they have in recent months.
Adding to that is the fact that the Fed put will continue to keep the dollar pressured to the downside in the bigger picture.
Despite already reaching such levels early on in the year, it is tough to fight the market momentum if the focus continues to be on reflation (bolstering commodities) and a global economic reopening (better for riskier currencies).
As such, gains may be more bumpy from hereon if the RBA decides to make known their dissatisfaction with price levels but if equities carry on with the party and the global economic outlook continues to improve, we may be targeting 0.8500 next.
Going back to the technicals, just take note that the 200-month moving average sits @ 0.8256 as well. But price looks set for a first monthly close above the 100-month moving average – which sits @ 0.7860 – since August 2014.

Dollar fails to take comfort in higher yields so far today

EUR/USD climbs to a six-week high of 1.2200

EUR/USD D1 25-02

Despite yields ticking higher to start European morning trade, the dollar is actually tracking lower across the board – except against the yen – in the major currencies space.
EUR/USD has climbed to a fresh high of 1.2200, its highest level since 13 January, as buyers look to try and break through resistance around 1.2170-97 at the moment.
The two key levels to watch going into the daily close will be the 22 January high @ 1.2190 and the 61.8 retracement level of the swing move lower this year @ 1.2197.
Keep a daily close above that and buyers will have more confidence in chasing a further move to the upside, with the dollar also looking vulnerable elsewhere.
AUD/USD is inches away from touching 0.8000 while USD/CAD is being pressured down to three-year lows just below 1.2500 at the moment.
While the dollar may be failing to find shelter now, the drop in US futures reflect more of a rotation trade rather than any broad risk aversion. But if the latter is to come around, just be mindful that it could help to keep the dollar somewhat supported later on.

AUD/JPY climbs to fresh three-year high as the yen comes under pressure again

AUD/JPY up 0.5% to 84.76, its highest levels since February 2018

The yen is weighed lower on the back of higher yields once again to start European morning trade, with AUD/JPY pushing to fresh highs in three years currently.

AUD/JPY W1 25-02
The pair is looking to hold a push past the March to June 2018 highs around 84.48-53 and that may very well pave the way for buyers to target October 2017 and January 2018 highs just above 89.00 in the bigger picture of things.
The jump higher across yen pairs is largely a reflection of weaker yen sentiment due to higher yields as we are also seeing GBP/JPY looking to hold a break above 150.00 for the first time since May 2018.
Meanwhile, NZD/JPY is also contesting with resistance from its December 2018 high @ 78.87 as it touches 79.00 for the first time since April 2018.
Adding to that is CAD/JPY breaching its February 2020 high and trading closer towards 85.00 – its highest levels since March 2019 – at the moment.

USD/JPY inches back above 106.00 as yields lurk higher

USD/JPY moves up to 106.05 to start European morning trade

USD/JPY D1 25-02

This comes as Treasury yields are at the highs for the day, with 10-year yields up 4.5 bps to 1.421% and 30-year yields up 5.5 bps to 2.289%. This is putting some downward pressure on the yen and will be a key spot to watch – similar to yesterday.

The 106.00 handle has helped to limit gains in USD/JPY so far this month – at least in terms of the daily chart – so this remains a key level ahead of the weekend.
Meanwhile, the shove higher in yields is also starting to have some impact on equities sentiment with S&P 500 futures paring gains to flat levels and Nasdaq futures now seen down 0.1% as things get underway in Europe.

Nikkei 225 closes higher by 1.67% at 30,168.27

Asian equities bounce back after a beating yesterday

Nikkei 25-02
Stocks are off to a good start on the day with Asian investors taking comfort from the gains in Wall Street overnight, with the Nikkei paring the drop from yesterday’s session.
The Hang Seng is also seen trading up by 2.1% after a sharp decline yesterday while the Shanghai Composite is up 0.7% going into the closing stages.

 

Overall, risk sentiment is keeping in a firmer spot as we look towards European trading.
US futures are also higher so far today and that is keeping the calm in the market mood, with Treasury yields also marked higher across the curve. 10-year yields are up 2.4 bps to 1.40% while 30-year yields are up 3.4 bps to 2.267% currently.
A sharp selloff in bonds yesterday prompted some jitters in equities, which were then reversed. So, this is still one area to keep an eye out for in case there are spillovers today.

Poll shows analysts expect another (approx) 6% higher for the S&P500 this year

Reuters polling on US equities, with the headline median forecast from 50 analysts showing

  • S&P500 expected to finish 2021 at 4,100
  • expected to be at 4,000 by end-June
And adds:
  • some strategists warning of a possible surge in inflation, many viewed a correction in stocks in the next six months as likely or very likely.
  • Progress in distribution of the coronavirus vaccine coupled with President Joe Biden’s proposed $1.9 trillion package for pandemic relief have boosted the outlook for the economy and earnings. 
Dow Jones industrial average
will finish this year at 32,970
Risks highlighted include:
  • inflation concerns
  • higher taxes as the economy accelerates
On higher yields:
  • “Higher bond yields aren’t turning us bearish on the year,” Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets …  “What the increase in yields does do, in our view, is provide another justification for rotation out of defensives and secular growth.”

US stocks close sharply higher. Dow industrial average closes at a record high

Russell 2000 index rises by 2.38%

The major stock indices all closed sharply higher with the Russell 2000 of small-cap stocks outperforming with a gain of 2.38%. The Dow industrial average is closing at a record high of 31961.86. It reached an intraday all-time high of 32009.64.

A look at the closing levels shows

  • Russell index up 53.08 points or 2.38% at 22840.40
  • NASDAQ index up 132.77 points or 0.99% at 13597.97
  • S&P index up 43.98 points or 1.13% at 3925.35
  • Dow industrial average up 424.51 points or 1.35% at 31961.86. The all-time high reached 32009.64
A blast from the past – well a a few weeks ago – Gamestop trading was halted with the price up 103% to $91.
Although higher, the NASDAQ index fell short of reaching its 200 hour moving average at 13612.098. The high price reached 13607.36.  A move above that level would tilt the technical bias more to the upside in the intermediate-term. The price of the NASDAQ index tumbled close below the 200 hour moving average on Monday and open sharply lower on Tuesday testing the low price from January 29 and bouncing.  Today, the pair opened lower again, but moved higher through the day, and closed near the highs.
Russell 2000 index rises by 2.38%

European indices close at session higher, erasing earlier declines

The major European indices erased earlier declines and are closing higher on the day. A snapshot of the provisional closes shows:

  • German DAX, +0.8%. The low for the day reached -0.06 percent
  • France’s CAC, +0.3%. The low for the day reach -0.37%
  • UK’s FTSE 100, +0.6%. The low for the day reach -0.81%
  • Spain’s Ibex, +0.2%. The low for the day reach -0.57%
  • Italy’s FTSE MIB, +0.7%. The low for the day reach -0.3%
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