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Dollar Index (DXY), Natural Gas (LNG) & Nasdaq (U.S. Tech) – FinTwit Trends to Watch


FINTWIT ANALYSIS

HOW FAR CAN THE DOLLAR GO?

The U.S. greenback has rallied this week placing pressure on most USD crosses. As we speak sees the Greenback Index shifting marginally decrease as latest upside paused on account of Q3 finish flows resulted in greenback promoting. The latest hawkish angle anticipated by the Fed has prompted the latest rise and could also be beneath extra strain as key excessive affect financial knowledge is scheduled subsequent week – see financial calendar under. The Non-Farm Payroll (NFP) report will play an vital position because the U.S. labour market continues to disappoint which has led many analysts to be cautious of stagflation (excessive inflation mixed with sluggish financial progress).

NEXT WEEK’S U.S. ECONOMIC CALENDAR:

US ECONOMIC CALENDAR

Supply: DailyFX financial calendar

The dollar is at the moment in a bullish setting as U.S. Treasury yields preserve its latest uptick – increased yields appeal to traders who might want to purchase {dollars} to spend money on U.S. authorities bonds. For my part, different central banks (notably Rising Markets (EM)) might want to hike charges regionally to stem the depreciation towards the U.S. greenback in any other case many EM currencies will seemingly stay on the present downward trajectory.

U.S. 10-YEAR GOVERNMENT BOND YIELDS (WHITE) VS DOLLAR INDEX (GREEN) YTD:

US 10Y TREASURIES VS DOLLAR INDEX DXY

Supply: Refinitiv

U.S. DEBT CEILING: A GROWING CONERN

One other vital issue to think about is the U.S. debt ceiling – restrict on how a lot debt could be acquired by the U.S.. This week, Democrats have been rebuffed by Republicans on their proposal to extend the present debt ceiling. What this implies is that ought to the U.S. be unable to make meet its monetary obligations, they are going to default on the debt funds and doubtlessly head for a catastrophic consequence whereby the U.S. will seemingly be downgraded. This could favor safe-haven currencies just like the Japanese Yen (JPY), though additional dumping of U.S. Treasuries might ensue thus favoring the greenback towards different crosses. The graphic under illustrates the prior (orange) and forecasted (purple) debt-to-GDP (%) which is already considerably above the 100% benchmark beforehand thought of as “excessive”. That is solely set to extend going ahead which begs the query, “the place do you draw the road?”.

US DEBT TO GDP %

Supply: Refinitiv

DOLLAR INDEX DAILY CHART

dollar index daily chart

Chart ready by Warren Venketas, IG

The day by day DXY chart reveals the aforementioned hiatus by greenback bulls indicative by the doji candle print yesterday. Doji’s typically necessitate indecision which ties in with the important thing U.S. financial knowledge bulletins later at the moment (Core PCE and PMI’s). These prints may give markets a directional bias going into subsequent weeks NFP’s. The Relative Power Index (RSI) is firmly in overbought territory however expectations round a reversal can’t be relied upon. The medium-term outlook stays bullish however a transfer all the way down to 94.00 assist is probably going earlier than persevering with the upsurge in the direction of subsequent resistance ranges.

Key resistance ranges:

Key assist ranges:

SIMPLIFYING THE NATURAL GAS CRISIS

WHY ARE EUROPEAN LNG PRICES RISING?

1. Climate

Colder than anticipated climate earlier this 12 months attributed to the beginning of the present worth rise in pure fuel. Climate is a key part when forecasting fuel demand and provide so something exterior of a projected vary can lead to knock-on results to LNG costs. The graphic under reveals TTF (European) vs JKM (Asian) and displays European LNG (inexperienced) buying and selling at a premium to Asian LNG (blue) at the moment. This premium favors additional European fuel worth upside on account of a rise in European LNG flows.

LNG POINT OF DIFFERENCE: TTF VS JKM

LNG point of difference TTF vs JKM

Supply: Refinitiv

2. Carbon tax

The EU has been clamping down on carbon utilization by way of elevated carbon costs which has made the change to fuel extra enticing. That is more likely to proceed because the give attention to cleaner power grows and the middleman shift to fuel earlier than renewables take over.

3. Provide

Provide disruptions have been frequent this 12 months and hampered the elevated demand as world economies began to get better and re-open. Based on S&P World, China has elevated its stockpiles and manufacturing to organize for the winter/spring season forward. The aim is to maintain provides constant all through the interval with out threat of shortages and should additional exacerbate elevated fuel costs globally.

NATURAL GAS (HENRY HUB)WEEKLY CHART

natural gas weekly chart

Chart ready by Warren Venketas, IG

Prolonged LNG costs (Henry Hub) are obvious on the weekly chart above because the European fuel worth rise spills over to different areas. A pullback from latest highs is represented by the lengthy higher wick on the newest weekly candle. Though the basic backdrop stays bullish, stretched worth motion might settle considerably earlier than resuming one other uptick.

Key resistance ranges:

Key assist ranges:

  • 5.500
  • 4.935 – November 2018 swing excessive

SECTOR ROTATION HURTS U.S. TECHS

U.S. tech shares have carried the brunt of the not too long ago sell-off within the U.S. authorities bond markets which have favored cyclical shares comparable to financials. The explanation behind the decline is easy, tech shares are susceptible to rising rate of interest forecasts as their future earnings expectations are discounted when charges rise – decrease valuations resulting in tech stoop.

Subsequent 12 months, with much less stimulus in U.S. markets as tapering commences the transfer into defensive shares might start as financial progress decelerates. For now, the excessive inflationary setting is more likely to promote increased treasury yields which ought to maintain off any kind of restoration from tech shares. Going into the ultimate quarter of 2021, financials and power are the desire of many.

Increase your inventory market data with our articles on the sorts of shares obtainable, how equities affect the financial system, and getting began with inventory buying and selling.

NASDAQ 100 INDEX (NDX) DAILY CHART

NASDAQ 100 daily chart

Chart ready by Warren Venketas, IG

Worth motion on the NASDAQ 100 day by day chart reveals a robust bearish bias because the index broke under medium time period assist turned resistance (inexperienced). The prolonged transfer down has mirrored in an oversold studying on the Relative Power Index (RSI). There’s nonetheless room for additional draw back which can see the July 2021 swing low (14452.4) come into consideration.

A bearish crossover (blue) is obvious because the 20-day EMA crosses under the 50-day EMA which advantages a bearish outlook from a technical perspective.

Key resistance ranges:

  • 15708.0
  • 15411.9
  • 100-day EMA
  • Resistance zone (inexperienced)

Key assist ranges:

— Written by Warren Venketas for DailyFX.com

Contact and observe Warren on Twitter: @WVenketas



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