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Stocks drift but sentiment remains positive towards risk

Fawad Razaqzada Fawad Razaqzada 12/01/2021
Stocks drift but sentiment remains positive towards risk Stocks drift but sentiment remains positive towards risk
Stocks drift but sentiment remains positive towards risk Fawad Razaqzada
…as evidenced, for example, by yen crosses such as the GBP/JPY breaking higher…
 
With little on the agenda on the macro front, European stock indices have drifted lower despite the big rally for Chinese markets overnight. In other words, the slight weakness is largely because of profit-taking. At the time of writing US futures were also pointing to a slightly weaker open. In FX, the pound had rebounded while the yen had extended its decline – another sign that it is still risk-on. Gold and silver were coming off their best levels after rebounding earlier. The US dollar index was flat after a 4-day rally, as the EUR/USD tested support around the 1.2150 area.    

In recent days, the dollar has been printing bullish price action, tracking the rising US 10-year bond yields. The greenback has risen most notably against the yen and gold, pointing to reduced have appetite. However, the dollar has underperformed against the likes of the pound and yuan. The reserve currency’s mixed performance means it is far too early to conclude it has formed a low, especially as sentiment towards risk remains overall positive.
Indeed, the reflationary trade is likely to remain in place for a while as investors look ahead to more normal times ahead, while knowing full well that central banks will be maintaining their extremely accommodative monetary policy stances for a while yet.

With the dollar all over the place, and risk assets still in demand, concentrating on the yen crosses make sense from a bullish point of view – not least the GBP/JPY, which has received a double whammy of good news: avoidance of a no-deal Brexit and the ongoing reflationary trade:

GBP./JPYSource: ThinkMarkets and TradingView.com

The GBP/JPY is likely to head further higher as investors price out no-deal Brexit risks further, something which I pointed out yesterday when analysing the GBP/USD currency pair HERE.
 
Meanwhile the EUR/JPY could be yen cross to break higher given that the positively-correlating GBP/JPY has already broken out to a fresh multi-month high today. The EJ has been holding inside a bullish consolidation pattern after bursting higher in early December. It has started to go a little lower in recent days, but this has now push rates to test key support around the 126.55 area:

EUR/JPYSource: ThinkMarkets and TradingView.com

As per the chart, this is where the bullish trend line meets the point of origin of the latest mini-breakout. If the EJ wants to go further higher, it will need to hold its own above this level now, as a clean breakdown would probably pave the way for a sharper correction.

If the above support holds, as I expect that it might, then the first bullish objective would be the liquidity above the most recent high at 127.50.  Thereafter, the 127.2% Fibonacci extension level comes in at 128.55.

However, if the above 126.55 support breaks down decisively then the bears may target the 126.00
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Mohammed Zidan
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Mohamed Zidan
Chief Market Strategist, Dubai

Mohamed Zidan is a chief market strategist in Dubai and CFA Level III candidate. He reports to London office and has more than eight years of experience focusing on Forex, Commodities, Indices and global economic developments as well as central bank policies and intermarket analysis. worked as FX Analyst, and Strategist in several different organizations and for various departments. He holds a bachelor’s degree from Cairo University in Egypt. Mohamed Zidan is a regular guest on several major TV networks such as; CNBC Arabia, Fran24 Arabic, Alarabiya , Dubai TV, Sama Dubai, Skynews Arabia, Saudi National News, and Egypt National news.

Zidan presents insight to the markets movements, holds open discussions and relays possibilities related to the world’s financial market and economies.

Mohamed Zidan has been invited as a guest speaker for several international seminars. Zidan provides daily and weekly outlook for the markets. His experience ranges from currencies, commodities, stocks and options. he applies a top-down, global macro approach combined with price action to generate trade ideas and anticipate the next move.

Victor Golovtchenko
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Victor Golovtchenko
Global Macro Analyst, Sofia

Victor Golovtchenko has been analysing and trading foreign exchange markets since 2004, and is actively involved in the online media space since 2014. His tenure as a Senior Editor at a major brokerage industry news outlet was followed with a breakthrough into the financial news space with the brand new TradeStar website.

As an affectionate macro-focused analyst, he has an integrated framework to look at financial markets as a whole, identifying gaps between currencies, stocks, bonds, and other asset classes to get a core complete picture of the macroeconomic environment.

Fawad Razaqzada
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Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Mohammed Zidan
Mohamed Zidan
He has more than eight years of experience focusing on Forex, Commodities, Indices and global economic developments as well as central bank policies and intermarket analysis.
Victor Golovtchenko
Victor Golovtchenko
Victor Golovtchenko has been trading on the foreign exchange markets since 2004, and is actively involved in the online media space since 2014. His tenure as a Senior Editor follows his role with TradeStar.
Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.

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