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Trading Signals and Trade Ideas From FCA Regulated Experts

There was a sharp reversal late in New York with Wall Street equities declining sharply as tech stocks posted renewed losses.

Posted: 21st January 2022
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Trade ideas & Daily market report January 21st 2022

Market highlights.

  • Risk appetite dominated and conditions were stronger in Europe on Thursday.
  • US bond yields edged lower after a larger than expected increase in jobless claims and US equities moved higher.
  • There was a sharp reversal late in New York with Wall Street equities declining sharply as tech stocks posted renewed losses.
  • Risk appetite remained more fragile in Asia on Friday with net losses in regional bourses.
  • The dollar recovered from intra-day lows against the Euro and risk currencies.
  • EUR/USD was unable to hold above 1.1350 and retreated.
  • The yen posted strong gains as equities slumped with USD/JPY declining to below 114.00.
  • Sterling held a firm tone with EUR/GBP dipping to fresh 23-month lows before stumbling as risk appetite deteriorated. GBP/USD traded below 1.3600 as UK retail sales also slumped.
  • Commodity currencies failed to hold gains and retreated sharply as risk conditions dominated.
  • Oil prices found strong support on dips, but crude was unable to resist the slide in risk conditions and retreated from 7-year highs.
  • Precious metals posted 2-month highs before a limited retreat.
  • The slide in risk undermined Scandinavian currencies.
  • Cryptocurrencies also posted sharp losses in Asia on Friday.

EUR/USD

The Euro was hampered to some extent by a further increase in French coronavirus cases. In comments on Thursday, ECB President Lagarde stated that the central bank has no need to act as fast as the Federal Reserve on monetary policy, although she also noted that the bank stood ready to respond if necessary.

There was evidence of divisions within the ECB minutes as a number of policymakers argued that inflation was at risk of over-shooting expectations. There were also comments that a higher for longer inflation scenario cannot be ruled out and the bank must be prepared to adjust policy in either direction.

US initial jobless claims increased sharply to 286,000 in the latest week from a revised 231,000 previously and well above consensus forecasts of 220,000. Continuing claims also increased to 1.64mn in the week from a revised 1.55mn and also above market expectations.

The Philadelphia Fed manufacturing index strengthened to 23.2 for January from 15.4 previously and above consensus forecasts of 20.0.  There were slightly stronger readings for shipments and new orders while employment continued to increase, although the rate of growth slowed. The prices paid index strengthened further on the month while there was a slight easing of upward pressure on prices received. Companies overall were more confident over the outlook with pricing pressures expected to remain very strong. The Philly Fed data offered reassurance over the outlook, but there were some reservations over the labour market after the claims data.

There was indecisive trading in early New York, but the dollar gradually recovered ground and posted stronger gains as risk appetite deteriorated with EUR/USD dipping to near 1.1300.

Markets will monitor US-Russia talks over Ukraine on Friday with risk conditions having an important impact and EUR/USD around 1.1325 with an element of carry-trade liquidation limiting selling pressure.

USD/JPY

US Treasuries secured limited gains after the US jobless claims data with yields edging lower which limited potential dollar support.

Existing home sales declined to an annual rate of 6.18mn from 6.44mn previously. Lower US yields sapped near-term dollar backing and the yen was notably resilient despite a sharp rebound in equity markets.  In this environment, the dollar dipped to lows at 114.00 towards the European close.

Wall Street equities dipped sharply late in the session, although USD/JPY was able to hold above the 114.00 level.

Japan’s CPI inflation rate increased to 0.8% for December from 0.6%, but below consensus forecasts of 0.9% while the core rate was -0.7% from -0.6% previously.

Risk conditions dominated on Friday with net losses in US futures and Asian bourses. The yen secured renewed defensive support with USD/JPY retreating to lows near 113.60 before a slight recovery to around 113.85 while EUR/JPY traded just below 129.0 as risk conditions dominated.

Sterling

Latest data from the ONS suggested there had been a sharp dip in business activity in December, but there was evidence of a tentative rebound in the third week of January. There was also optimism that an easing of coronavirus restrictions would help underpin activity over the next few months.

Sterling held a firm tone in early Europe with further support from market expectations of a February rate hike, although around 35% of analysts are not expecting an increase. The UK currency also gained traction from a stronger tone surrounding risk appetite, although the FTSE 100 index lost ground during the day.

There were no substantive political developments during the day, although the overall atmosphere in Westminster remained extremely tense

GBP/USD moved above 1.3650 at the European close and EUR/GBP dipped to fresh 23-month lows just above the 0.8300 level. The dollar recovered late in the day and a slide in equities after the European close sapped UK support with GBP/USD retreating to near 1.3600 and EUR/GBP recovered to 0.8330.

UK consumer confidence dipped to -19 for January from -15 previously. Retail sales slumped for December with a 3.7% monthly decline compared with expectations of 0.6% with a 0.9% annual decline from 4.7% previously. There was a muted reaction as risk conditions dominated with GBP/USD just below 1.3600.

Swiss franc

The Swiss franc was resilient on Thursday despite firmer risk conditions with support from a dip in US bond yields. EUR/CHF was held below 1.0400 and edged lower on the day while USD/CHF retreated to just below 0.9150. Markets remained wary over potential National Bank intervention, although there was also speculation that the bank would tolerate gradual franc gains given differentials in inflation rates. Markets were also monitoring Ukraine developments.

The Swiss franc maintained a firm tone on Friday as risk appetite remained fragile with USD/CHF held close to 0.9150.

AUD/USD + USD/CAD

The Australian dollar continued to advance during Thursday as equity markets posted net gains. Money markets also priced in an earlier Reserve Bank rate hike following the stronger than expected jobs data.

AUD/USD peaked around 0.7275 before fading slightly as the US dollar recovered ground. As equity markets moved sharply lower, there was a further retreat to 0.7225.

Risk appetite remained vulnerable on Friday with AUD/USD sliding to near 0.7180 before a slight recovery to near 0.7200.

The strength of oil prices and expectations of a near-term Bank of Canada interest rate increase continued to underpin the Canadian dollar.

Overall, USD/CAD retreated to near 1.2450 before finding support. As risk appetite dipped, there was a more substantial recovery to 1.2500.

The pair traded around 1.2520 on Friday as risk appetite remained more vulnerable.

NOK+ SEK

The Norges Bank held interest rates at 0.50% and, despite an element of uncertainty over Omicron developments, it still expects that there will be a further rate hike at the March meeting.

The Norwegian krone dipped lower following the statement, but recovered ground to post a slight net advance as high oil prices continued to provide support with EUR/NOK retreating to 9.93 before a rebound to 10.00 as risk conditions deteriorated.

EUR/NOK traded just below 10.00 on Friday with USD/NOK around 8.82.

The Swedish krona recovered from intra-day lows, but was unable to secure any traction with EUR/SEK surging to highs above 10.40 as equities declined sharply.

EUR/SEK traded around 10.42 on Friday with USD/SEK close to 9.20.

Equities

European equities struggled to make headway in early trading on Thursday, but gradually recovered ground and posted net gains into the close amid a rebound on Wall Street and hopes that the European Omicron wave was peaking.

Major UK stocks were in negative territory for Thursday with pressure for a correction in the resources sector. The FTSE 100 index recovered from intra-day lows, but posted a net decline of 0.1%.

Wall Street equities posted gains for most of the session, but there was a sharp decline in late trading. Underlying sentiment remained more fragile and a fresh round of losses in the tech sector helped trigger sharp selling late in the session with a 1.1% decline for the S&P 500 index.

Futures remained vulnerable on Friday and Asian bourses lost ground amid fragile sentiment.

Japan’s Nikkei 225 index declined 0.9% with a sharp 2.3% slide for the Australian ASX index.

China’s Shanghai index retreated 0.9% with Hong Kong Hang Seng index 0.25% lower in late trading.

Commodities

There was further choppy trading in crude oil during Thursday with underlying sentiment still supported by expectations of short-term supply shortfalls and stronger demand later this year.

In this environment, there was strong demand on dips.

EIA data recorded an inventory build of 0.5mn barrels compared with expectations of a small draw and there was another strong build in gasoline stocks.

WTI found support below $85.0 p/b and strengthened to highs above $86.50 p/b before sliding again as equities retreated.

The slide in risk appetite undermined crude on Friday with WTI trading around $84.20 p/b and Brent close to $87.0 p/b from 7-year highs near $89.50 p/b on Thursday.

There was pressure for precious metals to consolidate on Thursday following strong gains the previous day, but underlying demand held firm, especially with bond yields edging lower.

Gold hit 2-month highs above $1,845 per ounce and settled above $1,840 per ounce with silver posting a further advance to near $24.70 per ounce.

Gold held just above $1,840 per ounce on Friday with a silver retreat to near $24.60 per ounce from 8-week highs above $24.70.

Cryptocurrencies

Cryptocurrencies were able to resist selling pressure ahead of Thursday’s New York open and then posted a strong advance with support from a powerful rebound in US equities.

Overall risk appetite improved and bitcoin strengthened to above $43,000 at the European close.

Coins were able to make headway despite a proposed ban on the use and mining of cryptocurrencies by the Russian central bank.

Confidence, however, dipped sharply later in the US session as equities came under sustained pressure. In this environment, bitcoin posted sharp losses to below $38,500.

Ether also posted a strong advance to just above $3,250 at the European close before sharp losses to lows near $2,800 in Asia on Friday.

Calendar

Major events for the day ahead: (times in GMT)

13.00: UK BoE member Mann comments