DOW, SPX and DAX Hit Records While US Yield Surged, CAD Shone

Market overviews

Global equities struck a strong note in ending last week, with help from fresh US stimulus and ECB’s pledge to accelerate asset purchases. Yen, Dollar and Swiss Franc ended as the worst performing ones. Canadian Dollar was the strongest on the back of risk-on sentiment, while additional supported up expectation of BoC tapering and strong job data. Australian Dollar and Sterling followed as the next strongest.

One development to note was the surge in US yields, on Friday, together with the record run in DOW and S&P 500. We’re unsure if that truly reflect underlying optimism in the US economy. Or, investors were trying to force Fed’s handle for response on yields. Such development makes FOMC rate decision and press conference on March 17 particularly interesting. Yield could take off again if Fed shows indifference to its rise, or stocks could take off on hint on some operation twist. Let’s see.

DOW, S&P 500 and DAX Hit Record Highs, Nikkei Rebounded

DOW and S&P 500 surged to new record highs last week, as boosted by the passage of the USD 1.9T fiscal stimulus in the US. NASDAQ also ended the week higher, even though it under-performed. The package was signed into law by President Joe Biden on Thursday, and the stimulus checks are on the way to nearly 160m American households in the coming days.

DOW’s break of upper channel resistance is seen as a sign of upside acceleration. Daily MACD is also trending slightly up again. Yet, the real test would lie in 61.8% projection of 18213.65 to 29199.35 from 26143.77 at 32932.93, which is close to 33k handle. The index could still be rejected by this projection level on first attempt.

However, another round of powerful rally could solidify upside momentum further. Sustained break of 32932.93 would open the way to 100% projection at 37129.37 in the medium term.

A similar picture was also seen in German DAX, which high new record high before closing at 14502.39. It’s comfortably supported by rising 55 day EMA, while daily MACD is trending up. DAX is now facing 61.8% projection of 8255.65 to 13460.5 from 11450.08 at 14666.65. Firm break of this projection level, as well as the upper channel resistance, would open the way to 100% projection at 16654.89.

As for Japanese Nikkei, notable support was seen rising 55 day EMA. Friday’s rally argue that corrective pull back from 30714.52 might have completed. Retest of this high could be seen soon. Break there will resume the up trend from 16358.19 to 23178.10 from 22948.47 at 33983.08.

10-year yield extended up trend, threatening to accelerate to 2% handle

US 10-year appeared to be in deeper correction after the tepid 10-year auction. Yet, Friday’s rally to one year high, with a strong close at 1.635, was quite a surprise to the markets. It appeared that bond trades might be trying to test Fed’s nerve ahead of the FOMC meeting just days away.

However, there could be another round of selloff in bonds if Fed appears to be indifferent to the rally in yields. We might see TNX picks up momentum again, and then, the next notable resistance level would be around 2%. That is close to 1.971 resistance, and below 61.8% retracement of 3.248 to 0.398 at 2.159. If that happens, it would be a big test to overall market sentiments.

Dollar index’s rebound lost momentum after hitting 92.50

Dollar index edged higher to 92.50 last week but quickly retreated. For now, price actions from 89.20 are seen as a corrective pattern. Another rise cannot be ruled out as long as 90.63 support holds. However, we’d expect strong resistance from 94.74 (38.2% retracement of 102.99 to 89.20 at 94.46) to limit upside. Break of 90.63 will bring retest of 89.20 low.

Canadian Dollar accelerates upward against Euro and Yen

Canadian Dollar ended as the strongest one last week, with additional support from much stronger than expected job data. CAD/JPY’s rally is in further acceleration mode. Outlook will stay bullish as long as 85.71 support holds. Current up trend from 73.80 should target 161.8% projection of 74.76 to 81.91 from 77.91 at 89.47. We’d start to pay serious attention to near term topping signal around 91.62 key resistance.

EUR/CAD’s decline also accelerated to as low as 1.4892 last week. Near term outlook will stay bearish as long as 1.5067 resistance holds. Next target is 161.8% projection of 1.5978 to 1.5313 from 1.5783 at 1.4707. Current fall is seen as a leg of the triangle pattern from 1.6103. Hence, we’d look for bottoming signal beyond 1.4707, above 1.4263 support.

GBP/JPY’s up trend continued last week but lost momentum after hitting 152.21. Initial bias is turned neutral first. The cross is now pressing 100% projection of 123.94 to 142.71 from 133.03 at 151.80 next and channel resistance. Break of 147.38 support will indicate short term topping and turn bias to the downside for correction. Nevertheless, sustained trading above 151.80 will indicate upside acceleration. Next target is key resistance at 156.59.

In the bigger picture, rise from 123.94 is seen as the third leg of the pattern from 122.75 (2016 low). Next target is 156.59 resistance (2018 high). Sustained break there should confirm long term bullish trend reversal. On the downside, break of 142.71 resistance turned support is needed to be the first sign of completion of the rise from 123.94. Otherwise, outlook will remain bullish even in case of deep pull back.

In the longer term picture, the strong break of 55 months EMA (now at 143.95) is a early sign of long term bullish reversal. Firm break of 156.69 resistance should now confirm the start of an up trend for 195.86 (2015 high).