Daily market analysis

September 10, 2021

Daily Market Analysis

Market Focus

U.S. stocks fell in volatile trading as mixed economic data kept investors on edge about the timing of stimulus tapering even as the relentless spread of the Covid-19 delta variant undermines global growth. The S&P 500 notched a fourth straight decline after erasing an intraday gain that had brought it to within 0.4% of its all-time high. The dollar weakened and 10-year U.S. Treasury yields declined. European equities fell, with the Stoxx 600 erasing the initial advance it saw after the European Central Bank said it will slow its emergency support but keep policy accommodative.

The European Central Bank will slow the pace of its pandemic bond-buying program in the final quarter of 2021, a shift President Christine Lagarde insists isn’t a move heralding a wind-down in stimulus for the euro-region’s still-vulnerable recovery.

Lagarde spoke after the Governing Council decided it will conduct purchases at a “moderately lower pace” than the roughly 80 billion euros ($95 billion) of monthly acquisitions deployed in the past two quarters. She justified the decision by saying the euro region’s “increasingly advanced” rebound could be maintained with less monetary help.

The president also cautioned that the global spread of the delta variant could yet delay the full reopening of the economy. Officials, who revealed new forecasts showing inflation will still undershoot their target, reiterated a pledge to keep the 1.85 trillion-euro program running until March 2022 or later if needed, signaling they’re not yet ready to discuss ending the measure.

The ECB’s move to persist with stimulus contrasts with major central banks elsewhere, a differing stance Lagarde’s comments implicitly emphasized. The U.S. Federal Reserve and the Bank of England have signaled their intention to gradually unwind crisis-era aid.

The timetable for slower purchases in the next three months now makes the Dec. 16 meeting a crucial one for the future of the central bank’s stimulus programs. While the president said the decision was unanimous, keeping that consensus may be a challenge among policy makers whose judgments on the threat posed by inflation are known to differ.

Main Pairs Movement:

Cable shined amid a quiet day in the forex space, gained 0.5%. The surge in Cable is more convincing from a technical perspective rather than a fundamental one. That said, Cable’s fundamental outlook is mixed. On the positive side, BoE Governor Bailey and other MPC members see minimal condition to consider rate hike has been met. But, upcoming increase in tax rate proposed by Prime Minister Borris Johnson may weigh on the Sterling.

Euro dollar was mostly muted on Thursday despite ECB’s announcement of winding down monthly asset purchases to 60 to 70 billion euros. In the past two quarters, the PEPP program devoted 80 billion euros every month to help prop up the united economy. As health authorities around the world started to roll out vaccination in the beginning of the year, Euro Zone has seen COVID-19 infections dropped significnatly as of late, and economic activities are set to return to normal. However, ECB is still a long way from nudging interest rate to above 0% as President Largarde repeatedly reminded that this is NOT a “taper”.

We have seen relatively strong performance in safe-haven dollar, the Japanese Yen and Swiss Franc, climbed 0.49% and 0.54% respectively. The move was consistent with a drop in US Treasury yields, with the 10-year yield down 0.38%. An increase in demand for hedging may foreshadow a retreat risk appetite in the financial market as concerns of a freshly emerged variant, which has come be known as the ‘Mu’ variant, may pose challenge to current recovery around the globe. The lastest WHO report suggest ‘Mu’ variant can surpass immune defence and cause infection. More importantly, it is already making its presence internationally, and has spread to over 49 US states and 40 different countries worldwide.

Technical Analysis:

CHFJPY (Daily Chart)

CHFJPY is edging its way toward the lower bound of a big ascending tunnel, and threatened for a breakout to the downside. Prices continues to be choppy in the past few days after neck-line of a double-top pattern, coincided with the purple descending trendline, managed to cap further upward moves.

Given price is gradually deviating from a heavily guarded resistance zone bove, the odds are favouring sellers. In order to establish a convincing bearish reversal, sellers will have to breach support line at 119.2 and the aforementioned ascending trendline. If succeeded, we could be looking at further downside space at 117.4 and 115.74, levels that were last seen in April.

Resistance: 120.55, 122.8

Support: 119.2, 118, 116.9

GBPUSD (Daily Chart)

Cable shrugged off bearish moves in the last three days, advanced 0.5% on Thursday. This pair registered a long lower wick yesterday as price plunged as much as 0.43%, then rebounded on 61.8% Fibonacci support of 1.373, and settled above SMA20. The fact that price failed to penetracte SMA20 is leading up today’s surge.

In a broader picture, we could see Cable broke above a three-month descending trendline, then retraced downward to validate the breakthrough was solid. Now the bullish reversal is coming close to completion, the last obstacle would be previous high of 1.3874. Further in the north, big resistance sits around 1.396 and 1.41, the former has been keeping Cable subdued since June.

Resistance: 1.387, 1.396, 1.41

Support: 1.373, 1.367, 1.357

EURJPY (Daily Chart)

Selling bias for EURJPY is being carried over on Thursday, plunged 0.36%. This pair has formed a small double-top pattern, and today’s leg lower aided to finish up the formation. There is limited downside space to capitalize on. As we highlighted in the daily chart, bulls has set up a defense zone around 129.3 and 129.5. This zone could collaborate with SMA20 to provide robust support to EURJPY.

On the upside, bulls will look to contest recent high of 130.56. If conquered, doors will be wide open to potential upward move to 132.2. Conversely, any radical downside plunges will be bounded by 128.38.

Resistance: 130.56, 132.2, 134.13

Support: 129.3-129.5, 128.38

Economic Data