Asian Open: Equities finish on a high, dollar bears return

A weak NFP report and increased odds that Biden's stimulus package is to be rolled out later this month propelled equities to new highs and slammed the dollar on Friday.

It was another strong finish for global equities, with most global benchmark indices closing at or near record highs. The Russell 2000 enjoyed an impressive 7.7% rally last week, closed at an all-time high and was the strongest major index we track. The S&P 500 and Nasdaq-100 gained 4.6% and 5.2% respectively, with all three indices are accelerating away from their 10-week eMA’s to show an increase in bullish momentum.

It was slightly less impressive in Europe with the DAX and CAC hesitant to break to new cycle highs. And on the daily charts we note that the STOXX 600 and Dax printed small indecision candles (Rikshaw man doji’s), which could be of interest to mean reversion traders.

With Joe Biden’s $1.9 trillion stimulus package expected to be available by the end of the month, we expect US indices to continue to outperform their European counterparts over the foreseeable future.

In Asian, the Nikkei 225 appears set to break above January’s high which would see the index trade at its most bullish level since 1990. The ASX 200 closed at 6,840.50 following a 3.5% rally, although it faces key resistance levels which may take the steam out of its bullish run (the February lows at 6,893.70 and the psychological round number of 7,000).  

Sharp reversal on the dollar

Weak payrolls data on Friday sent equities higher and saw the US dollar give back most of Thursday’s gains. The US dollar index (DXY) posted a bearish outside day and fall back towards 91.04 support (a break beneath this key support level signals further losses). Despite the dollar weakness, USD/CNH broke a bearish streak to close higher for the first week in 9 weeks.

Elsewhere, bullish reversal candles have formed on the daily chart of several forex pairs; bullish engulfing candles (and 2-bar reversals) on EUR/USD and AUD/USD, and bearish engulfing candles on USD/CAD, USD/CHF, MXN/USD and DXY (US dollar index). Also take note of the bearish hammer on USD/JPY around the 200-day eMA, which suggests there may be some further downside before its bullish trend resumes. GBP/USD also closed the week just beneath cycle highs after rallying above Thursday’s bullish hammer. A break above 1.3758 assumes bullish continuation.

Price action on AUD/USD’s daily chart suggests correction from the 0.7820 high may be complete. The pair is clear in an established uptrend, and it has provided a gentle correction these past few weeks. The 50-day eMA is holding as support, and a wide bodied Doji (spinning top) candle formed on Tuesday to show a hesitancy to push lower, before producing two small ranging candles. More importantly, a bullish engulfing candle formed on Friday which closed at the highs (otherwise known as a bullish closing Marabuzo candle). The stochastic oscillator also generate a buy signal on Friday. 

  • Bulls could seek to enter upon retracements within Friday’s range. The 50% retracement of Friday’s open-close range (the Marabuzo line) may provide potential support and can be used to fine tune an entry point and risk management.
  • The initial target is the bearish outside candle high at 0.7764 and the 0.7820 high.
  • A break beneath 0.7558 invalidates the bullish bias.
  • Take note that the 200-week eMA is around 0.7870, just beneath the psychological round number of 0.8000 which will probably provide solid resistance

Oil leads the commodities surge

The Thompson Reuters commodities index (CRB index) surged to a 12-month high and cleared the 200-week eMA. Yet it is oil prices which can take most of the credit, with WTI and Brent gaining and impressive 6.2% and 4.1% respectively, whilst also making light work of their 200-day eMAs.

Copper prices suggest demand resides around 3.500 after generating two buying tails (lower wicks) over the past two weeks. Prices have found support around the 50-day eMA and Friday’s bullish range expansion session shows it is breaking out of compression and bulls intend to break to new highs, in line with the bullish daily trend.

Gold (XAU) remains on the back foot after breaking beneath its 200-day eMA. Although a small bullish candle formed on Friday and closed back above 1,800. But whilst it remains below the 200 day eMA then momentum favours a break below 1,767 support.

Large Speculative Positioning

  • Traders flipped to net-short exposure on AUD/USD futures
  • Net-long exposure on CAD/USD futures rose to its highest level since 5-months
  • Large speculators flipped to net-long exposure on MXN/USD futures
  • Net-long exposure on EUR/USD futures were trimmed by -28.3k contracts (-9.6%). Bulls reduced gross-long exposure by -21.2k contacts and bears initiated 7.1k new short positions.
  • Russell 2000 futures (small caps) reverted to net-long exposure after 1-week net-short.

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