Markets May Continue to Range As USD Weakness Persists

Markets May Continue to Range As USD Weakness Persists

Markets including equities, gold, and currencies were generally limited in ranging mode last week. News of coronavirus vaccines failed to give the mood another boost. Instead, investors are looking for fresh inspiration. The dollar finished as the worst but remained within the previous week’s range, except for the kiwi. The next weakest positions are the euro and the Swiss franc. Jena followed Kiwi in second place and then Sterling.

While breakouts are pending, we look at the outlook for stocks, earnings, dollar, gold, and oil below, as well as possible relationships. Signals are still conflicting as bullish stocks suggest a downside risk for the dollar. However, weakness in gold indicates some resilience in the dollar. Besides, the price of oil fluctuated within an acceptable range, which indicates a not entirely optimistic mood of investors. The same is reflected in the declining yield on 10-year bonds.

Last week, the dollar declined in a relatively corrective manner. While the near-term outlook remains bearish, the downside momentum does not yet guarantee an early breakout. Instead, a solid break of the 55-day EMA (now at 93.28) will extend the consolidation pattern from m91.74 with another upside step through 94.30 resistance. If this happens, it should be accompanied by a drop in stocks and returns, which means a return to risk aversion. However, a decisive break of 91.74 will resume the full decline from 102.99.
Economic Progress Anticipated
The greenback remained weak against most of its major competitors, but the major pairs held their usual levels. Market participants are looking not only at macroeconomic data but also at news related to the coronavirus.

Several of the leading companies developing vaccines to prevent COVID-19 have reported the first results of their Phase 3 test, with encouraging results. However, at the same time, there were 11,752 new coronavirus deaths globally on Friday, making this the deadliest day since the pandemic began.

These numbers lead to various restrictive measures that could lead to a slower economic recovery, which remains to be seen, and a steeper downturn before a return.

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Author : Azeez Mustapha


Azeez Mustapha is an experienced author, trader, markets analyst, signals strategist, and funds-manager.