ECB Hold Rates, Dollar Remains Under Pressure
The Bank of Japan (BOJ) and European Central Bank (ECB) kept monetary policy unchanged, as widely expected. ECB’s President, Christine Lagarde says the ECB expect CPI to increase once the pandemic is over, but currently underlying inflationary pressures remain subdued. Furthermore, the ECB stand by read to adjust all of is instruments, as appropriate to help inflation point in the right direction.
The Nasdaq 100 (USTEC) was once again the best performer on Wall Street, thanks to Biden’s stimulus package announcement. Yet the S&P 500 (US500) finished flat and produced a small bearish hammer with an intraday record high. The Russell 2000 closed -0.9% lower and shares across Europe were in the red.
The US dollar index traded lower for the third consecutive session and now resides just above 90. GBP/USD closed to its highest level since May 2018 and AUD and NZD closed to 4-day highs. USD/CAD saw a false break beneath key support and produced a bullish pinbar on the daily chart to suggest a bear-trap.
As we warned yesterday, Bitcoin (BTCUSD) broke out of its triangle formation to the downside, counter to the consensus of a bullish triangle breakout. BTC has since found support around 30k, and Ethereum (ETHUSD) sits at a 5-day low yet remains the stronger performer of the two these past few weeks.
Today’s Calendar Events (Times are GMT+11 Sydney)
Flash PMI data sets are the main economic calendar events today, followed by retail sales for UK and Canada. Whilst we have only shows the ‘composite’ PMI’s in the calendar (to save space), manufacturing and service PMI’s will be released for all regions. Rising services and manufacturing is the ideal scenario for bullish reactions as it indicates stronger GDP further down the track. Yet, if they are to soften (like they did in Australia today) we would expect a bearish reaction from related markets.
USD/CHF: Failed Breakout Could Appeal to Bears
We had been anticipating a bullish breakout on USD/CHF, yet Monday’s bearish hammer provided a false break and subsequent momentum has been mostly to the downside. The 50-day eMA and monthly pivot point are providing solid resistance. Furthermore, a bearish engulfing candle formed yesterday to show bears are back in control. This now places price action just above the midway point of a sideways range and brings the 0.8760 lows into focus for bears.
- The bias remains bearish below 0.8921, although a break above the high of the bearish engulfing candle can also be used to invalidate the bearish bias.
- Traders can seek to fade into minor rallies within yesterday’s range.
- Next major support is around the 0.8760 low, making it a viable target for bears.
AUD/CAD: Bullish Engulfing Suggests Swing Low is in Place
We highlighted AUD/CAD a couple of days ago, as it appeared it was trying to carve out a swing low. Whilst we have since seen a close beneath the 23.6% Fibonacci ratio, bullish momentum has returned and a bullish engulfing day closed back above the 20-day eMA. Furthermore, support has been found at the December 2018 high. We therefore suspect that think the swing low has now formed.
- Bulls could wait for a break above the bullish engulfing high. Or to potentially improve the reward to risk ratio, seek to buy dips within yesterday’s range.
- The bias remains bullish above the bullish engulfing low.
- The 0.9853 and 0.9900 are now viable targets for bulls.
Gold (XAU/USD): 1900 in Focus for Bulls
Real interest rates have fallen, and that is usually a bullish signal for gold. Technically, a bullish hammer formed at 1806 on Tuesday to suggest a swing low is in place, and yesterday’s bullish closing Marabuzo candle shows bulls remain in control. If you read the linked educational piece on Marabuzo candles, it demonstrates how the 50% level of the open to close of the Marabuzo candle can be used as a potential support level. Incidentally, this sits around 1855, so the 1850-55 zone is a viable level of support to aid with risk management.
- Bulls could consider entering with a break above yesterday’s high, or with a retracement towards 1850-55 support.
- 1900 is the next major target.
- A break below 1850 invalidates the near-term bullish bias.