Trade ideas & Daily market report April 29th 2021
Narrow ranges prevailed ahead of Wednesday’s New York open with notable caution ahead of the Federal Reserve policy statement and the Euro held close to 1.2075 with other asset classes also unable to make significant headway. The dollar edged lower into the Fed announcement, although EUR/USD was capped around 1.2100.
The Federal Reserve held interest rates at 0.25% following the latest meeting and also made no changes to the asset-purchase programme. Both decisions were in line with consensus forecasts and the votes were unanimous.
According to the statement the coronavirus pandemic is causing tremendous hardship across the US and world. It did, however, add that indicators of economic activity and employment have strengthened amid vaccination progress and strong policy support. Sectors most adversely affected by the pandemic have shown improvement.
It added that inflation has risen, largely due to transitory factors with confidence that inflation could be kept under control over the medium term.
The committee reiterated its aim to secure inflation moderately above 2.0% for some time to achieve the longer-term average target of 2.0%.
Reaction to the statement was muted with EUR/USD just below 1.2100 against the US dollar despite slightly more positive rhetoric.
Chair Powell stated that a transitory increase in rates this year would not meet the criteria for raising interest rates and that the economy is a long way from its goals while near-zero interest rates remain appropriate until these targets are met. He added that it is not time to talk about tapering yet and that it is doubtful whether there will be a substantial increase in inflation while slack remains in the labour market.
The dollar dipped lower following Powell’s dovish comments with EUR/USD highs around 1.2135. The US dollar remained vulnerable on Thursday amid expectations of sustained negative real rates, although it did recover slightly from two-month lows.
The latest GDP data will be released on Thursday with position adjustment also potentially important as the Euro traded around 1.2130 from 2-month highs at 1.2150.
US bond yields edged higher into the New York open with the 10-year rate around 1.63% which underpinned the dollar, although USD/JPY was unable to sustain a brief move above the 109.0 level while equity futures traded in very tight ranges.
The US goods trade deficit widened to $90.6bn for March from $87.1bn the previous month with a sharp monthly increase in exports offset by an even larger expansion in imports. The data failed to inject any momentum into currency markets, although the widening deficit is likely to trigger some alarms over the US deficit, especially with domestic demand increasing rapidly which will maintain strong demand for imports. The dollar will be vulnerable on deficit concerns over the medium term.
US yields moved lower following the Fed statement and dovish rhetoric from Powell with USD/JPY retreating to around 108.60.
Equity markets reacted favourably to President Biden’s speech on infrastructure spending and taxation with the Apple results also received well. US yields failed to recover, however, and USD/JPY was held around 108.65 after finding support just below 108.50 with EUR/JPY around 131.75.
Ahead of the US open, the UK Electoral Commission stated that it would investigate Prime Minister Johnson’s refurbishment of Downing Street amid allegations that an offence was committed. The overall impact was limited, but political uncertainty had some impact in curbing immediate demand for the UK currency and there was further selling interest on approach to 1.3900 against the dollar.
The currency was also hampered by concerns over next week’s Scottish elections. Overall tight ranges prevailed with EUR/GBP settling just below 0.8700.
Sterling did post an advance against the dollar following the Fed meeting, but it under-performed relative to commodity currencies with little net change against the Euro. Solid risk conditions provided some support for the UK currency with a GBP/USD move to around 1.3950 on Thursday while EUR/GBP held just below 0.8700
The Swiss ZEW economic expectations index edged higher to 68.3 from 66.7 previously and a fresh record high amid expectations of strong recovery in the economy once restrictions are eased. Optimism over reflation trades triggered only limited franc selling.
The franc was resilient during the day and strengthened as US bond yields moved lower. EUR/CHF retreated to lows near 1.1020 while USD/CHF dipped sharply following the Fed meeting to trade below the 0.9100 level. The franc was only marginally lower on Thursday with USD/CHF close to 0.9100.
AUD/USD + USD/CAD
The Australian dollar gradually posted gains ahead of the Federal Reserve statement amid expectations of global reflationary policies and AUD/USD moved back above the 0.7750 level.
AUD/USD posted further gains following the Fed statement and sentiment held firm in Asia on Thursday as equities posted gains. AUD/USD peaked at 6-week highs near 0.7820 before correcting to just below 0.7800.
Canadian retail sales data was stronger than expected with a 4.8% increase for March.
The Canadian dollar drew support from gains in oil prices and a fragile US currency.
USD/CAD dipped convincingly below the 1.2400 level and losses extended both before and after the Fed statement with USD/CAD lows around 1.2310.
The Canadian dollar posted a further advance on Thursday with USD/CAD dipping to 36-month lows below 1.2300 before a slight correction to just above this level.
The Norwegian krone was boosted by expectations of economic recovery and firm oil prices with EUR/NOK retreating to below 9.95.
The krone gained further support after the Fed decision with EUR/NOK dipping to 14-month lows around 9.90 before a slight correction.
USD/NOK recovered only marginally from 29-month lows near 8.15.
Swedish retail sales increased 2.6% for March with a year-on-year increase of 9.1% from 5.4% previously.
The krona was unable to make significant headway and EUR/SEK settled close to 10.12.
The krona gained an element of support from reflation trades with EUR/SK near 10.10 on Thursday and USD/SEK around 8.33.
Euro-zone equities were held in tight ranges on Wednesday with caution ahead of the Fed statement, although there was an element of optimism over underlying recovery prospects.
The German DAX index posted a 0.3% gain with solid gains across all major bourses.
Major UK stocks gained an element of support from recovery optimism with gains in the energy and mining sectors also providing support. The FTSE 100 index posted a 0.25% advance with little impact from domestic factors.
Immediate reaction to the Fed statement was subdued, but underlying sentiment held firm on the commitment to sustained policy support. The S&P 500 index posted a slight decline, but futures posted strong gains in Asia with a favourable response to the tech-sector results.
The Fed statement underpinned confidence in Asia. The Australian ASX index posted a 0.25% advance and China’s Shanghai index was 0.3% higher in late trading with Hong Kong’s Hang Seng index 0.8% higher.
Tokyo markets were closed for a holiday.
During Wednesday, crude gained an element of support from expectations that supply conditions would gradually tighten over the next few months.
EIA data recorded a marginal inventory build for the latest week compared with consensus forecasts of a small draw, but there was a significant draw in distillate stocks which helped underpin sentiment.
Although there were still reservations over Indian coronavirus developments, oil prices posted net gains with WTI posting 6-week highs near $64.50 p/b.
There was pressure for a correction on Thursday with WTI around $64.10 p/b despite dollar weakness while Brent traded close to $67.00 p/b.
Precious metals were hampered by higher US bond yields, but this was offset by a fragile dollar.
Gold moved higher following the Fed statement as the dollar dipped and yields moved lower with silver also paring losses.
Gold edged higher on Thursday amid a fragile dollar, although there was a retreat from $1,790 per ounce to near $1,780 while silver posted a net advance to $26.30 per ounce.
Cryptocurrencies were subjected to choppy trading on Wednesday with limited net gains during the day.
Bitcoin failed to hold $55,000 in European trading, but found fresh support following the Fed statement with expectations that real interest rates would remain negative.
There was potential support from a weak dollar and gains in US equity futures. Bitcoin, however, was unable to take advantage and retreated to below $54,000 in Asia on Thursday.
Ether continued to find solid support on any dips and strengthened to fresh record highs above $2,750 before a limited correction.
Major events for the day ahead: (times in BST)
13.00: German Consumer prices
13.30: US GDP (Q1 flash estimate)
13.30: US jobless claims
02.00 (Fri): China PMI index