The wind of change blows harder, as markets expect the new U.S stimulus package – Market Overview

By: Miguel A. Rodriguez

15:22, 09 February 2021

In recent days, the main focus of attention has been on a potential upturn in inflation in the United States.

That’s due to the rise in the price of raw materials, the increase in the cost of sea freight and, the imminence of the new fiscal stimulus package. However, things look different today, with market movements experiencing a correction in the opposite direction.

US Treasury bonds rise in price and the 10-year benchmark drops a few basis points.

It is necessary to take into account that although inflationary expectations are on the rise for the reasons mentioned above, increasing the selling pressure of longer-term bonds, the Federal Reserve continues to maintain a very aggressive asset purchase program such as stimulus monetary policy, and at the moment there is no plan to start the tapering process. This undoubtedly adds an element of support to the bonds that could act as a ceiling for the corresponding yields.

Therefore, today's movement cannot be considered a change in attitude, but rather must be framed within a technical correction of tactical short positions and not a return to the massive purchase of bonds that we witnessed in the first moments of crisis when the Federal Reserve cut interest rates aggressively.

The corrective movement of the market has been generalized.

The futures of the North American stock indices experience slight losses early in the morning and continue to await news regarding the fiscal stimulus package.

The USD/JPY pair loses ground.

In the case of USD/JPY pair, it failed to overcome the barrier of the 200-day SMA line and fell to the vicinity of the next support zone located around 104.50.

GOLD has been gaining territory until reaching and surpassing a level of resistance around the band between 1840-1850, despite the U.S Dollar’s recent surge.

The inflationary expectations that emerged recently have played an important role in this upward momentum of the precious metal but against it would be the strength of the dollar, which has a negative correlation with the metal. At the moment and from a short-term technical perspective, bearish divergences in the RSI appear on the hourly chart.

Sources: Financial Times, WSJ.

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