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Recovery signs help risk mood

Updated May 4, 2021

Overnight Headlines

*USD recoups some of yesterday’s losses even after equity bounce

*US stocks were mostly higher driven by energy and materials, tech lagged

*Fed’s Powell stated US economy was doing better but “not out of the woods” yet

USD is trading around the 50-day SMA on USDX with a firm resistance zone above at the 50% retrace level and mid-March lows around 91.33. Friday’s sharp rally has blunted last month’s 3% uninterrupted sell-off as traders look to central bank meetings (Bank of England and Norges) plus the payroll data at the end of the week.

US equities pushed higher generally overnight with those tied to the economic reopening rallying on signs of global economic recovery as restrictions were relaxed. European stocks have opened higher while the UK FTSE is better bid as it plays catch-up after its bank holiday.

Market Thoughts – Game of waiting

With Japan and mainland China’s markets still closed and the UK coming back to work, the month is off to a fairly slow start. Beneficiaries of a pandemic recovery were in vogue yesterday with value continuing to outperform growth for the fifth consecutive day, while defensives beat cyclicals despite the risk-on mode. The RBA kept policy rates at 0.1% and they are expected to remain there until 2024, when there is set to be enough wage growth from a tighter labour market to push up inflation to the 2-3% range. The bank did revise growth higher but lingering virus uncertainty and below-target inflation warrants the current supportive monetary stance.

Chart of the Day – $1800 gold in sight…

Speculators cuts their longs in gold futures last week and with ETF holdings remaining near one-year lows, gold has been stuck in a $1760-$1798 range over the last few weeks. The dollar’s recent bounce has stopped any bullish momentum in the precious metal, but US bond yields are key and if they roll over, then gold can potentially push higher. (Yields down, gold up, yields up, gold down). Remember too that sharp moves higher in gold historically see heightened volatility. The rejection of prices below $1760 keep the bias bullish but $1800 has been tough to crack, with the 100-day SMA around this mark as well. If bulls can break higher, then the double bottom target is at $1835.

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