Weekly Market Outlook: US dollar short squeeze and earnings in focus
In a relatively light week for economic news, all eyes turn to the US dollar short squeeze and whether or not it has the legs to continue. While last week’s US Non-Farm Payroll number slightly missed expectations, Biden’s $1.9 trillion coronavirus relief plan has moved one step closer.
The political situation between Republicans and Democrats may also give further clues to whether the stock market can keep on rallying higher after an impressive push up in the last week, with US indices recording new all time highs.
There is also a range of different earnings announcements due from European and US companies, from the likes of Twitter, Uber, ABN Amro, Coca-Cola, AstraZeneca, NVIDIA and Walt Disney, among others.
You can learn more about some of the global themes affecting the markets in this selection of education articles:
- Chinese Stock Market - Investing in Chinese Stocks
- Understanding the Difference Between Common Stock vs Preferred Stock
- What is Bull Market? Definition, Trading & Investing Strategies
Weekly Forex Calendar
Source: MetaTrader 5 trading platform provided by Admiral Markets
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Trader’s Radar - The British Pound (GBP)
The British pound was one of the most volatile currencies last week. On Thursday, the Bank of England commented that they believe negative interest rates will now not be necessary due to a stabilizing economy and the success of the coronavirus vaccine rollout. However, they did expression caution and asked banks to be ready for negative interest rates in six months time.
This helped lift sentiment around the pound causing a huge move higher. The weeks prior to this saw the British pound range trade after many of the pound pairs approached long-term horizontal resistance levels. The failure of sellers to step in and drive the market lower is a sign of strength.
There are some still big concerns regarding the outcome of a deal between the EU and the City of London which many are saying is unlikely. Considering UK financial services contributes more than £75 billion in tax revenue to the UK, employs 3% of the UK workforce and produces 11% of total UK Government tax receipts, one would expect pound traders to be cautious.
However, with the UK leading the race in the coronavirus vaccine rollout, the bulls are in control in the short-term.
Source: Admiral Markets MetaTrader 5, GBPUSD, Monthly - Data range: from Feb 1, 2006, to Feb 5, 2021. Performed on Feb 5, 2021, at 7:00 pm GMT. Please note: Past performance is not a reliable indicator of future results.
In the long-term, monthly price chart of GBPUSD above it’s clear to see the break of the long-term descending trend line that has developed since 2008 and 2014. Now that buyers are above this level, they may target the next level of resistance which is just under the 1.4000 price level.
With both the British pound and US dollar showing general strength across the other pairs, the pound could strengthen as the US dollar becomes more exhaustive. Traders may well drop to lower time frames to identify bounces off key support levels such as moving averages.
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Corporate trading updates and stock indices
Global stock market indices produced an impressive rally last week with the US indices, such as the S&P 500 and Nasdaq 100 index surging to new all-time highs. European indices also joined in on the action with the DAX 30 falling a few points shy of its all-time high price level.
Traders will therefore be looking for momentum to continue in this direction. The trigger may be the finalisation of Biden’s $1.9 trillion coronavirus relief bill, as investors look towards the economy after the coronavirus vaccine rollout.
The FTSE 100 was the laggard as the British pound continues to strengthen. You can learn more about the inverse correlation between the FTSE 100 and the British pound in the ‘Investing in the UK Stock Market After Brexit’ article.
Source: Admiral Markets MetaTrader 5, SP500, Daily - Data range: from Sep 23, 2020, to Feb 5, 2021, performed on Feb 5, 2021, at 6:30 pm GMT. Please note: Past performance is not a reliable indicator of future results.
Past five-year performance of the S&P 500 circa: 2020 = +16.17%, 2019 = +29.09%, 2018 = -5.96%, 2017 = +19.08%, 2016 = +8.80%, 2015 = -0.82%.
In the daily chart of the S&P 500 stock market index above, it is clear to see the bounce from the ascending trend line (black line) and the 50-period exponential moving average (red line). Buyers surged back into the market and pushed it towards a new all-time high. Traders will be looking for clues that this momentum can continue.
Sentiment in global stock markets may also be impacted by the range of earnings announcements due this week from European and US companies. Some of these include:
- Tuesday 9 February - Lyft, Cisco Systems, Twitter,
- Wednesday 10 February - Uber, ABN Amro, Heineken, Coca-Cola
- Thursday 11 February - AstraZeneca, Roku, NVIDIA, Walt Disney
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