Concise market analysis for the coming year – your Outlook 2021 is now online. First, read: End of Brexit Transition and Impact of C19 Vaccines on the Market.
February 26, 2021, 5:35 a.m.
Yesterday’s bond price continued to weigh on sentiment as Asian indices took the lead on Wall Street and traded broadly lower. The ASX 200 fell to a 3.5-week low of 6,658.90 and, perhaps unsurprisingly, the tech sector was the worst performing, down -5.1% after the Nasdaq led losses on Wall Street yesterday would have. Ultimately, all sectors of the ASX 200 were in the red. The Hang Seng was -2.7 lower but found technical support above the January low while the Nikkei 225 accelerated its downtrend below 30,000, with its next level of support being the January high at 28,979.53.
The reserve Bank of Australia (RBA) was forced to buy 3-year Treasuries today as the 3-year yield surged above its 1% target. The RBA is currently suppressing the short end of the curve and is aiming to limit its 3-year period to a maximum of 1%. The fact that they have to intervene in the first place makes things interesting because if investors keep selling their bonds (resulting in rising yields) the RBA will have to keep buying. If they don’t keep yields low, traders will be quick to notice, which will increase bond sales and further increase yields. Watch this room …
AUD / USD tests January high after failing to hold the 80c grip. Now that traders are sitting at an important level of support, they need to watch the USD and bond yields closely to decipher their next move. NZD / USD has also hit our first target set in today’s Asia Open report and is likely to continue to follow the direction of the AUD. If the AUD falls below the support, the NZD is expected to follow suit.
AUD, GBP and NZD are the weakest majors, USD and JPY are the strongest. AUD / CAD was the only pair to exceed its Average True Range (ATR), which leaves a lot of potential volatility for FX traders entering the European and US sessions.
After a weeklong power outage, FaceBook (FB) turned news on to Australian users again after signing content deals with three small local publishers. The timing is not a coincidence.
Just yesterday the Australian Parliament passed a new law forcing companies like FaceBook and Google to pay content to news publishers if they are unable to negotiate a private deal with publishers. The fact that FaceBook signed three contracts today suggests that the Australian government has got the world’s largest media company to submit proposals. And if the world looks on, it could pave the way for other nations to follow suit.
FaceBook is currently trading at $ 254.69, closing on the 200-day eMA yesterday. We might expect the stock to weaken if investors believe earnings will be hurt (if other nations follow suit), but we also have the fact that stocks are broadly lower anyway. From a technical point of view, price action remains corrective since its record high last August and we are not convinced that the corrective low has occurred. A pause below yesterday’s lows requires a bearish resumption and brings the 244 lows for bears into focus.
There are various degrees of risk-off. During a normal “risk off” session, gold can appreciate in value as it attracts inflows from investors from high-risk assets such as stocks, commodity currencies, or emerging markets. And then there are risk-risk-off sessions where gold falls with sentiment as investors sell all assets to either return to cash or sell their gold to make margin calls in other markets. The last session was the last when gold fell with stocks, commodities and emerging markets.
Gold fell again to retest the November lows at 1,764 after a slight rebound towards its 200-day eMA had caused. Suffice it to say that the 200 day eMA has been capped as resistance, the price move has made a lower high and we are waiting for a possible lower break.
Given the bond yields that are driving the show, we’ve been able to find all the data that should take a back seat. The key question for traders today is will yields keep rising and if so, will they keep the markets cracking? Multiple markets at critical levels (gold on 1764 support, S&P 500 on 50-day eMA, and Nasdaq-100 on key support) could be a make-or-break session. Keep an eye on the dollar and the VIX (which should rise during the risk of failure, especially if returns continue to rise). However, if returns do not rise, this could give markets a rebound before the weekend and allow a risky rebound towards the end of the weekend. Keep your analysis updated.
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