Technical Analysis: Equity Markets vs Currencies Edition

The US dollar fell against all of the major and most of the emerging market currencies last week.  Risk appetites have been rekindled, and the yen has gone from the best performer in recent weeks to the worst over the past week. 

Major equity markets advanced for the third week.  The MSCI Emerging Market equity index has rallied more than 15% since the January 21 low, and nearly 12% since the February 11 low.  The index finished the week at its best level since January 4.

Breaking Down the 'Breakevens'

Over the next fortnight the major central banks, including the ECB, BOJ, Fed and BOE will hold policy-making meetings.  Of the four, expectations are the highest for the ECB to ease policy.

Charities' Challenge of Socially Responsible Investing

Charitable organisations by definition aim to do good with the money they receive and spend. However, what about the investments they make? What if these investments don’t appear to match the aims that the organisation promotes? For example, a charity that promotes conservation would raise eyebrows if they invested and received returns from an oil company. Some charities have come under particular scrutiny for this mismatch, while others have faced calls to divest their money from uncomfortable concerns. Others use ethical investing as a guide.

Technical Indicators Muddy Golden Waters

During a period in which the zero bound no longer is the floor of interest rates, and many central banks continue to ease policy, we have been watching gold a bit closer. 

In early January, we noted that the technical pattern warned of breakout.  Our first objective was $1110-$1135.

In early February, we updated our view with gold trading near $1150. The charts still looked constructive; we suggested a new target near $1200. 

Your CFTC Report: Minor Position Changes

The position adjustment among speculators in the currency futures market was minor in the reporting week that ended February 23.  We regarded only one gross adjustment as significant (more than 10k contracts).  The Mexican officials sprung a bear trap and forced speculators to cover.  There were 15.8k gross short peso in speculative hands bought back, leaving 83k contracts still short. 

Technical Considerations Favor Further Dollar Gains

As systemic anxiety eased, the US dollar got better traction. The dollar-bloc currencies managed to hold their own as cross positions were unwound.  

Major bourses posted gains for the second consecutive week.  With the recent advance, several markets, including the S&P 500, FTSE and Sweden, China, Korea, and Taiwan are now positive on the month.  

Can You Break a 500-Euro Note?

The internecine pitch battle between ECB President Draghi and the man who may very well be his successor, Bundesbank President Weidmann opened a new front this week.  It is over the future of the 500-euro note. 

Was Yesterday's U.S. Reversal a Fluke?

The foreign exchange market is unusually calm.  The US dollar is little changed against currencies.  While the selling pressure that took sterling below $1.39 and the euro below $1.10 has subsided, neither has been able sustain upticks.  The euro rose to $1.1040 before sellers re-emerged. Sterling was capped near $1.3965.

The dollar had slipped to almost JPY111.00 yesterday, coming within five ticks of the February 11 low, before rebounding with the recovery in US stocks and advance in US yields.  The greenback's gain faltered near JPY112.65.

Dollar Strength from its Peers' Event-Driven Weakness

The US dollar has begun the week with a strong advance against sterling and the euro. Sterling's drop, the most in several years, is not a function of macroeconomic policy.  It is a function of Brexit and its endorsement by London Mayor Johnson.  Recent polls and identified Johnson, who term as Mayor ends in early May, as the second most influential person on the issue after the Prime Minister himself.