The week started very active with big bearish openings across risk assets. However, the Asian session is leading a cautiously positive recovery. Heading into the London session, safe havens are pressured after being supported by last week’s beating of the stock markets.
S&P 500 is recovering over half of Friday’s dip – up by over 1.5%, to lead the way as one of the most-watched risk meters. The dollar remains below 90.88 and currently ranges within the late last week boundaries, with early London surges taking it to 90.8. Downbeat EURUSD, on the other hand, has dropped 40 pips since the week opened. AUD and NZD pairs against risk-on assets are the biggest gainers overnight, although are shedding some of that.
Gold and silver are pushing higher with the former eyeing last week’s 1875 high. The oil market also edges higher, basking on the current risk-on sentiment. Meanwhile, the crypto market remains in the bearish phase. except for XRP.
Looking ahead this week, risk-sentiment is expected to remain the major market driver along with some macros especially the US employment data. Let look at the risk drivers to watch out for.
US Stock Market amid Reddit controversy
Traders should watch activities around the US stock market this week for clues on the general risk tone. Wallstreet was pressured last week following the Reddit traders’ assault on the big guns. US stock indices recorded their biggest losses since the November election. The sustenance of the current recovery might be dependent on what happens around this space this week. Risk-on assets like Gold, Silver, Oil, Aussie, Kiwi and their FX cross pairs will continue to flow with the stock market as the dollar index moves in the opposite direction.
US Stimulus
President Biden’s proposed $1.9 trillion stimulus package is still on hold before the Congress. Concerns might build as to likely further delays from the legislators. Meanwhile, a group of 10 Republican Senators have put together a proposal for President Biden to consider a smaller relief package. According to them, a smaller package would afford more targeted compensation to citizens with the largest needs. The passage of the stimulus has already been priced-in but with the current twist, it still remains an important risk concern for traders and investors.
Covid-19
More millions of doses of Covid vaccines are being deployed globally to curtail the spread of the virus. Vaccine firms are ramping up production to be able to meet up with targets. However, there are fears of new variants causing a setback in recovery and thus leading to concerns about the vaccines’ efficacy to cure them. Further restrictions have been enforced in some parts of Europe as the zone takes vaccination more seriously. The global weekly rate of infection is still slowing down as vaccinations spread across at a faster rate.
Macro-economics
Looking ahead this week, the spotlight will be on the rate statements and monetary policies by the Reserve Bank of Australia and the Bank of England on Tuesday and Thursday respectively. Also, the employment reports in the US, Canada and New Zealand on Friday (US and Canada) and Tuesday (New Zealand) will be vital for volatility. US and Eurozone PMIs are also some news events to note. The macros are quite loaded this week.
Market Forecast
FX
If the risk-on persists on Monday, we should see the dollar index (DXY) pressured to 90.4. However, the 90.88 resistance level should be watched closely as it could be the gateway for a further surge to 91. EURUSD could stay range-bound between 1.205 and 1.215. A breakout of any of these intraday extremes will confirm the near-term direction. However, a further surge could be limited at 1.22. GBPUSD could eye further rally toward 1.38 where it could meet the next resistance after surpassing the 1.375 barrier. AUDUSD and NZDUSD are expected to build on the current recoveries toward 0.775 and 0.73 respectively. USDJPY bulls are back on the track. However, the 105 psychological level should be watched closely. Meanwhile, USDCAD looks bearish and might drop toward 1.268. However, a minor surge to 1.283 could happen prior.
Commodities & Cryptos
In the commodities market, Gold recovery should continue toward 1900 or at least 1880 while oil prices should flow with the general risk sentiment. WTI still remains downbeat technically. A dip to $51.5 is very much likely or a further sideways move between $53 and $51.8 could ensue. Downside move should be capped if risk-on persists.
The cryptos have re-ignited the current bearish phase. It seems digital assets will decline further in the near-term before resuming the long bullish trend. Bitcoin to $28,000, Ethereum to $1,000 and Litecoin to prices below $100 are very much likely. Meanwhile, XRP has been the outlier this week as Ripple faces the authorities. Currently, at $0.66, the altcoin is close to retesting the $0.79-$0.8 resistance level.
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