Stocks Closed at Records as Delta Worries Receded, Dollar Index Holding On to Weak Rally

Market overviews

It has been a very volatile week as risk markets were initial knocked down by fear of the infectious delta variant. But sentiment made an about-turn then, even with US indexes closing at record highs. Still, despite late recovery, Australian Dollar ended as the weakest one. Yen was surprisingly the second worst performing, given that it was the early star in the week.

Canadian Dollar ended as strongest but we’d doubt if it’s strong could sustain. Dollar maintain a second place after all the moves. Euro was mixed with little reaction to ECB’s new forward guidance. Sterling was also mixed, but seemed to be getting out of the clouds over the “freedom day”.

Delta worries short-lived as NASDAQ closed at record

Overall, the financial markets ended the week on a strong note despite initial deep risk selloff. Solid earning reports of US companies certainly helped sentiments. But more importantly, the worries that the spread of delta variant of COVID-19 would derail economic recovery were not that persistent.

Infections in the US, UK, and some European countries like Spain and France did surge over the past seven days. Yet death tolls remained relatively low, without much significant rise. That development suggested that, thanks to vaccinations, these advanced countries are still on the right track to stay with reopening. But of course, situation in some countries like Indonesia is still worrying.

NASDAQ’s correction proved to be relatively brief as it soared to close at new record high at 14836.99. The notable support from 55 day EMA also affirmed near term bullishness. It’s still on track to next target of 61.8% projection of 10822.57 to 14175.11 from 13002.53 at 15074.39.

Even the under performing DOW also closed above 35k handle for the first time ever, after reversing initial selloff. We’d still be cautious on another rejection by 35091.56 resistance to start another falling leg to the corrective pattern from there. But it looks like the resilience in both S&P 500 and NASDAQ could give overall sentiment, and DOW, a floor.

Another fall in 10-year yield still possible despite rebound

10-year yield also staged a strong rebound after hitting as low as 1.128, and closed at 1.286. Yet, it’s kept well below structural resistance at 1.420, as well as 55 day EMA. Hence, another fall cannot be ruled out, considering that stock markets could remain jittering. But it’s becoming more likely that strong support would be seen between 50% retracement at 1.134 and 61.8% retracement at 0.985 to form a bottom. Ideally, after that, yields and stocks would realign into synchronized up trend as the we finally exit the impact of the pandemic totally.

Dollar index continued to crawl higher with weak momentum

There was no special development in the Dollar index last week, as it continued to crawl higher with weak momentum. We’d stay cautious on topping around current level to complete the third leg of the corrective pattern from 89.20. Break of 92.00 support will bring deeper fall back to retest 89.20 low. However, before that, DXY could still have another rise through 93.43 resistance before completing the consolidation pattern.

Canadian Dollar’s rebound with oil might not last long

Canadian Dollar’s rebound last week was very much in tandem with oil prices. Yet, we doubt if the strength in both could persist. 76.98 should be a medium term top considering bearish divergence condition in daily MACD. Thus, a break of 76.98 is not expected for the near term. Another falling leg should be seen before the corrective pattern from 76.98 completes. Though, at this point, even in case of another rise, there should be strong support from 38.2% retracement of 33.64 to 76.98 at 60.42, which is close to 60 handle, to contain downside.

Meanwhile, USD/CAD should at least be correcting the decline from 1.4667, and another rise is still in favor to 38.2% retracement of 1.4667 to 1.2005 at 1.3022. There is prospect that 1.2005 is indeed a medium term bottom, as consolation pattern from 1.4689 completed after another take on 1.2 handle. In such case, rise form 1.2005 should develop into a near term up trend itself. But of course, rejection by 55 week EMA will revive medium term bearishness instead.

AUD/USD dropped further to as low as 0.7288 last week but formed a temporary low there and recovered. Initial bias remains neutral this week first and some consolidations could be seen. But outlook will stay bearish as long as 0.7443 support turned resistance holds. Break of 0.7288 will resume the whole decline from 0.8006 to 161.8% projection of 0.8006 to 0.7530 from 0.7890 at 0.7120 next. However, break of 0.7443 will bring stronger rebound to 0.7530 support turned resistance instead.

In the bigger picture, rise from 0.5506 medium term bottom could have completed at 0.8006, after failing 0.8135 key resistance. Correction from there could target 0.6991 cluster support (38.2% retracement of 0.5506 to 0.8006 at 0.7051). We’d look for strong support from there to bring rebound. However, sustained break of this level would argue that the whole medium term trend has indeed reversed.

In the longer term picture, rise from 0.5506 could have completed at 0.8006. But subsequent fall is now seen as a correction only. As long as 0.6991 structural support holds, we’d expect another rise through 0.8006 at a later stage. However, sustained break of 0.6991 would argue that the trend has reversed and put 0.5506 low back into radar.