It’s hard to know what to make of the price moves of the past week or so. Barely days after the markets were freaking out about a slowing global economy, vaccine durability and an increasing determination on the part of China to pour sand in the wheels of its own recovery story, with various crackdowns on parts of its own economy, global stocks have rebounded strongly at the start of the week.
Yesterday’s price moves, particularly where US markets, oil prices and the US dollar are concerned, have been almost whiplash inducing in the context of what we saw with last week’s price moves. European markets enjoyed a modest rebound from their worst week since February, while US markets hit new record highs for the Nasdaq and S&P 500. Oil prices, which fell heavily last week, posted their best day in nine months, while the US dollar which hit its highest levels this year on Friday, dropped like a stone. Some have suggested that the US FDA granting full regulatory approval of the Pfizer-BioNTech vaccine helped oil the wheels for the move higher to new records for US stocks, however this feels like adding a narrative to fit the price action.
The move higher was already underway well before that news came out and while it won’t have hurt the move looks to have had its origins in Friday’s comments from Dallas Fed president Robert Kaplan’s admission that he might adjust his views on a taper if the current surge in Delta cases prompts a US economic slowdown in the coming months. In a sense this was a timely intervention on the part of Kaplan, reminding markets that the Fed remains very much data dependent and that for all the focus on the timing and composition of a taper, it's not likely to happen if Fed officials feel the economy isn’t able to withstand it. That message started to get a little bit lost in all of the headline hyperbole of last week.
With delta infections starting to rise again, the key focus is now on vaccine durability if you are in the US and UK, and the need for booster doses. If you are in Europe, the requirement to get everyone double-jabbed by the autumn, or in Asia the requirement to get everyone their first dose. This may also help explain why US markets have once again outperformed, while markets in Europe have been less enthusiastic with respect to the current rebound, given the greater exposure European stocks have to a Chinese economic slowdown. Concerns about that haven’t gone away despite this week’s recovery, and while markets in Asia look set to see another decent session the more buoyant tone does’t change the fact that little has changed in the past few days, as we look towards a positive European open.
EUR/USD – has continued to edge higher, off the 1.1660 lows of last week, and has found its way above the 1.1720 area in the process. This should open the way for a move towards the 1.1800 area and the 1.1830 resistance level.
GBP/USD – broke above the 1.3670 area, and pushed back to the 1.3725 area which was the initial catalyst for last week’s move lower being it was the 61.8% retrace of the 1.3570/1.3985 up move. We need to break back above 1.3730 to stabilise and signal a return to the 1.3800 area.
EUR/GBP – ran out of steam just shy of the 0.8600 area, slipping back below 0.8580 in the process We could see further weakness towards the 0.8530 area, which needs to hold to sustain the current up move. A move below 0.8520 negates and argues for a move towards 0.8480.
USD/JPY – still looking toppy near to 110.20, with support at the lows last week at the 109.10 area. We need to see a break either side to determine the direction of the next move.