Last week saw another strong, bullish, risk-on week across the different asset classes with the S&P Emini climbing to new all-time highs and closing above the 2200 mark. The post-election rally has been the primary driver for the past 3 weeks and investors keep piling into equities; about $1 Trillion has been added to equity values since the election. The market is still focusing on Trump’s plans to cut taxes and boost fiscal spending which will likely lead to an increase in corporate profits. The following analysis is the opinion of optimus Futures, LLC.
The Emini closed very bullish on Friday, all the way at the high of the candle signaling a lot of strength. Price is now moving into uncharted terrain which can bring difficulties if traders are looking for technical confluence. But it is all about the momentum at this stage. A dip and a retracement back into the previous resistance at 2180 seems possible because price tends to retest such crucial price areas.
As mentioned last week, Gold is the exact opposite of the Emini, and with stock market enthusiasm and the risk-on environment, the appetite for safe-haven investments is fading. Thus, Gold broke below the support at 1190 without looking back. The next line of support is at 1100, and although it seems far away for now, if the Emini keeps putting in new highs, it’s not an unlikely target.
Gold traders must keep an eye on the development of equities since the correlation is the driver of Gold these days.
Trump’s spending plans, higher inflation forecasts and the increase of the interest rates by the FED are also impacting the government bond market in a significant way. With the US-Dollar higher, real economic data and a renewed Bond sell-off, many analysts believe that the bond bull market has come to an end. The spending plans will probably boost not only growth but also increase the supply of government bonds. So far, bond prices are tumbling and borrowing costs have risen during this post-election period.
Technically, 30 year US Treasuries stopped their decline at the 152 level. We still haven’t seen a pullback during the past three weeks which makes the price look weak and could foreshadow another wave lower. The previous swing lows at 148 and 144 seem like likely next targets to the downside. Macro-wise, a deep retracement higher doesn’t look likely but things can change fast, and price hasn’t retested the 162 resistance yet.
It’s going to be a busy week with the NFP. Bond traders will keep a close eye on news events and if more good news hit the markets, it could potentially drive the price down further.
At the beginning of the week, the US-Dollar rose to a 14 year high but price saw some profit taking at the end of the week. The post-election effect is also impacting the US-Dollar, and additional spending and higher inflation are also going to support the Dollar over the long-term. At the same time, the future FED interest rate decision, where a rate hike seems like an almost certainty now, is also supporting Dollar bullishness.
Technically, a dip back into the 100 resistance seems possible and if the profit-taking persists ahead of this week’s NFP data, we could see a drop back into the level. However, analysts expect that the profit taking on the US-Dollar will most likely not lead to a full reversal without a bigger catalyst.
The OPEC-uncertainty factor is weighing heavily on Crude Oil and whereas it looked like an agreement on production cuts was almost there during our last Sunday analysis, Saudi Arabia pulled back and said that it wouldn’t attend the next OPEC meeting to discuss output reductions. At the same time, a decline in China’s Crude Oil Imports also added to the late week sell-off in Crude.
After it looked like the price has found support at the 43 area and was headed to the upper end of the range last week, the price has printed a pinbar, erasing all prior week’s gains and a dip back into 43 is now the likely scenario. The OPEC meeting this week will be the key factor for Crude, and if it becomes evident that a cut is not going to happen, the 43 level could break and open the room for a drop back into the 36 support from the beginning of the year.
There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.