[Market Review].
This week, U.S. bond yields and the U.S. Dollar Index both retreated, gold, silver, and most non-U.S. currencies rallied collectively, while crude oil jumped up and down. Let’s look at the specifics below.
The Fed minutes were dovish. Let’s start with the news from the US. This week, the Federal Reserve released the minutes of its March FOMC meeting. The minutes once again emphasized the stance of maintaining ultra-loose monetary policy in the short term, and discussed interest rate adjustments. In addition, Fed officials said they were not concerned about a significant rise in U.S. bond yields. As with the previous position, the Fed still believes that although the economic recovery has achieved some success, but there is still a long way to go to make substantial progress. At present, the U.S. economic recovery still faces many challenges, such as concerns about the re-emergence of the epidemic.
The Biden administration has worked hard to advance infrastructure plans. Meanwhile, President Joe Biden is also working hard to advance his infrastructure plan.
Recently, non-partisan members of the Senate ruled in favor of the Democrats using the reconciliation process to pass additional legislation, meaning they will be able to use the budget reconciliation process three times during the year, one more than previously. This was interpreted as facilitating the passage of Biden’s infrastructure plan.
However, the use of the reconciliation process to pass the bill will require the support of all Democrats to a large extent. Currently, the tax plan designed for the infrastructure plan, especially the corporate tax increase to 28%, is opposed by some Democrats. To alleviate the embarrassing situation, Biden has stated his willingness to negotiate the corporate tax rate. The U.S. corporate tax rate may only be mentioned to 25%. Externally, in order to reduce the transfer of profits from U.S. multinational corporations to overseas, the U.S. also advocates that the world follow the pace of tax increases.
Judging from this week’s releases, the Biden administration is working hard to move forward with a long-term economic stimulus plan, though little substantive progress has been made yet, so we can keep an eye on it.
U.S. bond yields and U.S. indices are both shaking to the downside. As the U.S. still maintains a dovish stance, the U.S. fundamentals did not appear significant positive, coupled with the U.S. initial jobless claims recorded 744,000, more than expected, although the data was interpreted as not fully showing the effect of the $1.9 trillion stimulus package, but still weighed on the dollar, the dollar index and U.S. bond yields this week both retreated. Among them, the 10-year U.S. bond yield fell to near 1.6%, while the dollar was close to breaking the 92 mark.
Gold jumped $20 for the week. Both U.S. bond yields and the dollar index retreated, supporting gold. Gold prices climbed from near $1,730 to above $1,750 this week, pushing as high as $1,758.54.
Silver prices rose more than 2% during the week. Silver also followed gold’s rally, with silver prices rising more than 2% during the week to touch a high of $25.59.
The euro saw big gains. In non-U.S. currencies, the euro also saw a rally as the dollar came under significant pressure. The euro rose more than 120 points against the dollar this week. Although the recent euro rose fiercely, but we should also be wary of the euro’s retracement risk, after all, the European epidemic is still plaguing the European economy.
The British pound is under pressure to the downside. Let’s look at the pound again. The pound’s movement diverged from that of the euro. The British pound fell more than 80 points against the dollar this week. Traders took profits after the strong upward movement of the pound in the first quarter, dragging down the pound. In addition, market skepticism about Johnson’s plan to reopen the economy also weighed on the pound.
U.S. oil is broadly oscillating. Finally, let’s focus on the oil market. Crude oil’s trend this week is not clear, mainly in the $57-60 range up and down.
On the positive side, the U.S. and the global economic recovery is steadily proceeding. As the summer travel peak approaches, the market is watching to see if this drives crude oil prices back up further.
On the bearish side. While EIA crude oil inventories recorded a sharp decline, a sharp increase in gasoline inventories weighed on oil prices. Earlier, U.S.-Iranian relations have eased and Iran is afraid of increasing oil exports, which also suppressed oil prices.
However, some analysts say that the market has now priced in Iran’s increased exports. In addition, it will take several months for Iran to resume exports, during which OPEC’s increased production also continues to increase, coupled with a rebound in oil demand. Therefore, Iran’s increased oil exports, the negative impact on oil prices may not be very large.
[Risk Warning].
Euro: recovery worries or suppression of the euro concern support level 1.1860
Financial website Fxstreet analysts said, recently, the euro against the dollar strong breakthrough 1.19. dovish message from the Federal Reserve, the dollar under pressure, the euro was able to rebound. The vaccination issue, however, could depreciate the euro.
Europe relies heavily on the AstraZeneca vaccine, but the link between the vaccine and blood clots has been confirmed and some countries have banned the AstraZeneca vaccine for young people. Against this backdrop, downside risks for the euro remain. We can watch for support at 1.1860 and 1.1820. If the EURUSD rallies further, we can watch for 1.1920.
JPY: US-JPY fears downside in the near term. Watch for support at 108.34
Citigroup discussed the technical outlook for the dollar against the yen. The bank believes there is downside in the near term for the U.S. yen. The pair is currently trading below the key support range of 109.85-109.94 and completing a triple negative momentum divergence near the trendline high. From here the USJ is more likely to move down with a lower target of 108.16-108.34. Beyond that, strong support will be seen at 106.92-107.05.
New Zealand Dollar: If NZD falls below 0.6945 it will extend downside correction
Westpac noted that the recent slowdown in New Zealand’s economic momentum and the potential negative impact of the government’s housing restrictions will drag on the New Zealand dollar. If the New Zealand dollar falls below 0.6945 against the U.S. dollar, it will confirm that its downside correction from the February 25 high of 0.7465 may not be complete, and the pair has room for further declines.
However, the bank also noted that if the pair breaks above 0.7070, it is bullish in the short term. Although the New Zealand dollar has recently retreated, it remains bullish in the long term and is expected to end the year at 0.76. Global economic growth may improve in the second half of this year relative to the U.S., which would put the dollar under pressure and the New Zealand dollar under support. In addition, the bank also stressed that if the New Zealand Fed keeps monetary policy unchanged next week, the New Zealand dollar is unlikely to see a decline.
Key Forecast
Saturday 01:00 U.S. oil drilling total fears increase
Last week’s oil drilling total of 337 was released, the largest since the week of April 24, 2020. The drilling total continues to rise, indicating a recovery in the U.S. economy and increasing extractors’ expectations of an economic recovery.
Currently, the market expects the total number of oil drilling in the United States to the week of April 9 to 343, if the published value is greater than expected, or bearish oil prices; conversely, will be positive oil prices.
In addition, also need to pay attention to the news from Saudi Arabia. Saudi Crown Prince Salman said that in order to diversify the economy’s revenue sources, Saudi Arabia launched a multi-trillion dollar spending plan that will require state-owned companies to cut their dividend payouts in order to boost capital spending. Analysts said any cuts would likely require higher oil prices to compensate. Saudi Arabia’s strategic goal of 27 trillion riyals in domestic spending by 2030 means OPEC leader Saudi Arabia may need to restrict supply in coming years to push up oil prices, Bank of America economists said.
In the near term, look for news on U.S.-Iranian relations and the epidemic. Some of the sanctions on Iran could be lifted as the U.S. and other major powers negotiate to restart the Iran nuclear deal, which would increase global oil supply. On the epidemic front, the resurgence of the epidemic in Europe and the possibility of another nationwide blockade in Germany will depress oil prices.
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