Wells Fargo & Co. dragged down the banking sector in the wake of disappointing fourth-quarter results

18 January 2021, 03:02

Market Focus

U.S. stocks fell by the most in more than a week after Wells Fargo & Co. dragged down the banking sector in the wake of disappointing fourth-quarter results. Crude oil declined from a 10-month high as the dollar strengthened.

The energy and financial sectors led the S&P 500 into the red for a second day, with Exxon Mobil Corp. dropping 4.8% after a report said the company is being investigated for overvaluing assets. Utilities and real estate shares rose. Stocks were already lower in Europe and Asia as President-elect Joe Biden’s much-anticipated $1.9 trillion Covid-19 relief plan came under scrutiny. Optimism about the U.S. aid package had helped spur the so-called reflation trade, but the plan is far from a done deal. Biden’s proposal could be watered down under congressional opposition, and there’s the possibility that some taxes could rise.

Biden’s “American Rescue Plan” includes a wave of new spending, more direct payments to households, expansion of jobless benefits, and enlargement of vaccinations and virus-testing programs as deaths record levels and local governments expand lockdowns.

Attention is now turning to how much of the package will ultimately get passed by Congress, with the go-big price tag and the inclusion of proposals set to be opposed by many Republicans. As lawmakers wrangle over details, U.S. jobless claims published Thursday painted a dismal picture and the U.S. is leading all countries in virus deaths with New York state reporting more than 200 daily fatalities for the first time since May.

Market Wrap

Main Pairs Movement

The dollar is poised for the first weekly back-to-back rise since September amid mid-month position adjustments before a long weekend in the U.S. as risk appetite waned ahead of central bank meetings starting next week.

Investors are concerned that the Biden administration’s stimulus plan may struggle to win broad-based support and soft bank earnings. Haven asset demand rose following weaker-than-expected U.S. retail sales and reports the EU was notified Pfizer won’t be able to deliver scheduled vaccine volumes in full during the next 3-4 weeks. Treasury 10-year yields declined 3.7bps to 1.09%.

USD/JPY up marginally at 103.86 with pair whipsawed by cross-related selling and broad dollar buying; holds to narrow trading range of 103.62 to 103.90 as implied ease; finishes the week down less than 0.1%; EUR/JPY sinks as much as 0.6% to its lowest level in a month and a half.

USD/CAD rises 0.7% to 1.2733 after climbing as much as 1% amid a drop in WTI oil prices; pair finishes up 0.3% on the week; 1-week implied rose to 7.25% ahead of a Bank of Canada meeting next week.

Technical Analysis

GBPUSD (4 Hour Chart)

Sterling turns negative beneath 1.36 level from high at 1.37 amid dollar spur by risk sentiment, erasing a weekly gain. In the meantime, the pair has also received tailwinds from a repricing of money market expectation for BoE negative interest rate policy (NIRP) in 2021 and beyond. For eco data, U.K. GDP(MoM) shrank 2.6% worse than last time after London lockdown second time. On the other hand, weaker-than-expectation Manufacturing Production record 0.7%.

From a technical perspective, short-term moving average indicator kick-start turns south side and long term moving average indicator slightly turn into downward. For the RSI aspect, the indicator slid beneath 50 slightly, set 43 as of writing, which suggests a nascent bearish phenomenon. Due to the aforementioned suggestion, we expect sterling will consolidate in the range between first pivot support and resistance at 1.3618 and 1.354.

Resistance: 1.3618, 1.3678, 1.37

Support: 1.354, 1.3448

EURUSD (4 Hour Chart)

Eurodollars extend downside momentum to nearly one month low at 1.2078 as of writing, amid the dollar posting one of its biggest increase since the early days of the pandemic. ECB warning the full effect of the pandemic crisis on euro-area banks has yet to be felt as policy support so far has masked losses, several ECB officials noted. “Euro-area banks are likely to face significant losses and further pressure on their already weak profitability prospect and must be extremely prudent on issuing dividends and ensure their capital can absorb their losses”, the Irish governor said.

For the price action aspect, it’s clear that the euro has tamped down a month-long “double top pattern” after breakthrough right shoulder at 1.2138. For Moving Average aspect, short term indicator consecutive downward slope, long term one as well. For the RSI perspective, the indicator showed 32 figures and close to the over sought zone, suggesting a bearish side.

We could not preclude that eurodollar extended losses scenario combing all suggestions above. However, we still expect 1.2078 would be critical support for price pattern, If not, the following second pivot support at 1.1995.

Resistance: 1.2138, 1.2211, 1.2251

Support: 1.2078, 1.1195

XAUUSD (4 Hour Chart)

After moved in a tiny gain yesterday, gold had difficultly extended retracement momentum amid lack of event and the greenback soared up intraday. Gold continuously slid intraday to 1827.95 which is a critical support level, as of writing.

From a technical perspective, gold is still on the way to a bearish trend as 15-SMAVG consecutive upwind after it had a slightly flat position. Meanwhile, the 60-SMAVG indicator remained its descend trend momentum as bias is getting wide. On the other hand, the RSI indicator is moving sideways below 50, set 37 girds, suggesting bearish further for the short term a least.

We expect that 1817.77 would become powerful support which is Jan 11 low and shoulder of W shape reverse pattern. Therefore, we believe the tamp down market will get a limit while it approaches first pivot support. However, if any fundamental driver drag market down again, the last lowest point in 1767 would foreseeable ahead.

Resistance: 1856, 1863, 1879

Support: 1827, 1815