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The price of cotton has surged amid global demand and supply issues

The price of cotton has surged amid global demand and supply issues

20220118
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Market Focus

U.S. markets were closed on the 17th in observance of Dr Martin Luther King day and markets will resume trading on the 18th. The benchmark U.S. 10-year Treasury yield edged higher to 1.811% and the 30-year Treasury yield also edged higher to 2.14%. China released its fourth-quarter GDP for 2021 yesterday and the nation saw an 8.1% growth, year over year. However, retail sales figures missed expectations by about 2%. Furthermore, the central bank of China has decided to lower medium-term loan rates in order to prevent an economic slowdown. The current medium-term loan rate set by the PBOC sits at 2.95%, which the central bank is lowering by 10 basis points to 2.85%.

The cryptocurrency market once again retreated slightly after yesterday’s trading. Bitcoin lost close to 2% and is currently trading below 42,200. On the other hand, Ethereum experienced a deeper drop by 4.15% and is currently trading at 3210.

Main Pairs Movement

The Dollar Index recovered from last Friday’s low and is currently trading above 95.25. Continued rising treasury yields have propelled the Dollar. A parallel shift of the yield curves could further fuel the Dollar’s demand.

Cable continued to drop amidst a stronger Dollar across the board. Strong selling pressure appeared once the European session began.

Cotton has gained steam over the past month, as global demand for the commodity continues to rise amid a supply interruption due to unfavourable weather conditions.

Natural gas has resumed trading around 4.11 as the supply chain issue, which appeared last week, eases. Demand for the commodity remains high, but it remains to be seen if the commodity will recapture the 6.6-dollar mark of late 2021.

Technical Analysis

GBPUSD (Daily Chart)

The GBP/USD pair edged lower on Monday, following last Friday’s sharp retreat from a three-month high above the 1.373 level. The pair was surrounded by bearish momentum and dropped to a daily low during the Asian and European sessions, staying relatively quiet below 1.3700 as it headed into the New York session. At the time of writing, the GBP/USD pair started to see fresh selling and targeted the 1.3600 area. Cable was last seen trading at 1.3645.

On the technical side, the RSI indicator reads 63.35 as of writing, suggesting bulls are still robust at the moment. In conclusion, we think the market will be bearish as the pair failed to gain sustained strength beyond the 200 DMA and the pair could extend its downward correction toward 1.360.

Resistance: 1.3736 (200 DMA), 1.3830, 1.3900

Support: 1.3600, 1.3500, 1.3400

COTTON (Monthly Chart)

Cotton continues trading with a positive bias, and it is for the first time in a decade when cotton prices have fetched farmers above $100, not to mention the current price near $120. The multi-month price rally was mainly because of the surging demand post-COVID recovery, followed by a drastic fall in production due to unfavourable weather conditions. However, due to expensive offers, there are chances of an increase in selling interest as the market prices are quite lucrative. Therefore, a correction is expected in the next few weeks.

On the technical front, cotton prices have breached the 150% Fibonacci and are approaching the 161.8% resistance. The RSI reads 74.73, suggesting that cotton is highly overbought and that cotton prices are highly likely to experience a correction in the near term. We expect the price of the cotton to drop to around $95 if it is blocked by the 161.8% or 176.4% Fibonacci, and the price will further decline to normal (around $66) around Autumn 2022, when the season for cotton harvest begins.

Resistance: 123 (161.8% Fib), 130 (176.4% Fib)

Support: 105 (123.6% Fib), 95 (100% Fib)

Natural Gas (Daily Chart)

In last week’s trading, the price of natural gas surged to monthly highs around $4.80, though it dropped sharply in the coming days, the price actions remain above $4.00 per MMBtu. Recent volatility in the natural gas price derived from the winter weather expectations, the potential for extreme weather events such as the latest cold snap in northeast America, and a rise in demand for natural gas imports in Europe and Asia. As the supply chain bottleneck is expected to ease in the second half of 2022, the natural gas demand is likely to remain resilient in the short term, but will slightly fall once the supply catches up with the demand.

On the technical side, the natural gas price has broken through its past resistance of $4.00, once bounced off the next resistance at $4.80, and is lingering around $4.20 per MMBtu as of writing. The price action is now above its 20 and 200 DMA, and just slightly below the 50 one. The RSI reads 53.13, suggesting a neutral-to-bullish sentiment. The uptrend of the pair seems convincing, eyeing the $4.80 price level.

Resistance: 4.80

Support: 4.20, 4.00, 3.55

20220118
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Britain’s better-than-expected quarterly GDP growth didn’t provide enough upward momentum for the…

Britain’s better-than-expected quarterly GDP growth didn’t provide enough upward momentum for the Pound, but the pound ended the week with a solid 0.71% gain

20220117
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Market Focus

The broad U.S. equity market closed the week mixed. The Dow Jones Industrial Average retreated 0.56% to close at 35911.81, the S&P 500 gained 0.8% to close at 4662.85, and the Nasdaq composite gained 0.59% to close at 14893.75. This week marks the beginning of earnings season, as companies release Q4 results from 2021. Goldman Sachs and Bank of America are among the bigger companies that will be releasing earnings results this week, then followed by Netflix and Procter & Gamble. The benchmark U.S. 10-year Treasury yield remains at 1.793%, while the 30-year Treasury yield sits at 2.127%.

On this week’s economic docket, China’s GDP figures, Britain’s CPI and unemployment data, the Eurozone’s CPI data, and the U.S. Initial Jobless claims figures are due for release. The U.S. equity markets will be closed on Monday, due to Martin Luther King Jr. day.

Main Pairs Movement

The Dollar Index rose 0.32% over the course of Friday’s trading. The dollar rose amid weaker than expected retail sales figures. Market participants may have interpreted the weak retail sales figure as a signal indicating a weaker U.S. economic environment, however with imminent rate hikes on the horizon and continuously rising bond yields, the Dollar seems unstoppable.

Cable lost 0.23% over the course of Friday’s trading. Britain’s better-than-expected quarterly GDP growth did not provide enough upward momentum for the Pound, but Cable ended the week with a solid 0.71% gain.

The Euro-Dollar pair retreated 0.35% over the course of Friday’s trading. The ECB’s president failed to provide any fuel for the recovery of the Euro.

Gold also faltered against the Dollar on Friday. The precious metal lost 0.27% against the Dollar.

Technical Analysis

GBPUSD (Daily Chart)

On Friday, a pack of solid UK macroeconomic data failed to underpin the British pound, which struggled to cling to the 1.3700 figure, falling during the New York session. At the time of writing, GBP/USD is trading at 1.3675. It is worth noting that the US Dollar Index reclaimed the 95.00 level, up some 0.25%, and is sitting at 95.05, underpinned by the rise of the US 10-year T-bond yield, which is up 1.75%, a gain of three basis points. Moreover, the dismal sentiment in the equity markets revived the demand for safe-haven assets, which is also in favour of the greenback.

On the technical front, after being rejected by the persistent 200 DMA resistance, Cable continued falling during Friday’s trading, heading to the next support line at 1.3600. The RSI for the pair reads 67.44, and has dropped out from the overbought territory. However, the pair might not necessarily bounce back as the dollar starts to price in the effect of the rate hike announcements by the Fed.

Resistance: 1.3737 (200 DMA), 1.3830, 1.3900

Support: 1.3600, 1.3500, 1.3400

EURUSD (Daily Chart)

The Euro selling has continued into the North American session, though the bearish intra-day momentum has eased for the moment, with the pair finding support above the psychologically important 1.1400 figure. At current levels around the 1.1415 mark, the pair is trading lower by about 0.4% and is over 0.6% lower versus its month highs in the 1.1480s. Apparently, the downbeat US data released on Friday didn’t scare of the dollar bulls, as they bet the Fed will focus more on the elevating inflation and the tight labour market, rather than the monthly Retails Sales or a non-deadly Omicron spread.

On the technical front, euro bears tested the 1.1400 support once, but was rejected. The pair is lingering around 1.1415 at the moment, and as the dollar strengthens, the downside risk increases. The RSI for EUR/USD has dropped from the 60s, suggesting the upside traction is diminishing. As previously mentioned, If the pair had managed to cling on to the 1.1400 threshold at the end of the week, then we could expect the pair to reach the next resistance level at 1.620. However, if it fails, the looming Fed’s hawkish monetary policies may push the dollar up, again dragging the Euro pair to the downside.

Resistance: 1.1620, 1.1700

Support: 1.1200, 1.1000, 1.0780

XAUUSD (Daily Chart)

Gold slipped for the second consecutive day amid dismal US economic data revealed on Friday. XAU/USD closed the day at $1,818 a troy ounce. During the New York trading hours, Gold failed to capitalize on negative readings on US Retail Sales and Industrial Production, and disappointing Consumer Sentiment. In the meantime, the US 10-year benchmark yield advanced firmly five basis points after sitting at 1.771%, heading to the weekly highs around 1.80%.

On the technical side, market sentiments toward the precious metal have remained slightly optimistic since Wednesday. However, the revived dollar strength is weighing on gold, making the dollar a better safe-haven asset than gold. The RSI for gold reads 54.75, showing that the demand for gold remains positive. The pair is now lying above its 20, 50 and 200 DMAs.

Resistance: 1830, 1860

Support: 1800, 1785, 1765

20220117
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The weekly jobless claims in the U.S unexpectedly rose by 23,000 and…

The weekly jobless claims in the U.S unexpectedly rose by 23,000 and the PPI rose 0.2%

20220114
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Market Focus

In two economic data releases on Thursday, the PPI rose 0.2%, well below expectations and down from a 1.0% gain in November. In the labour market, weekly jobless claims unexpectedly rose by 23,000, with economists citing the effect of the Omicron variable. The three major indexes ended lower on Thursday, with the Nasdaq leading a 2.5% loss, as investors took profits, especially in tech stocks, after a three-day rally, while several Fed officials talked about inflation and interest rate hikes. At the end of the market, the Dow Jones Industrial Average slipped 0.5% to 36,113.63 points, the S&P 500 index fell 1.4% to 4,659.02 and the Nasdaq Composite Index lost 2.5% to 14806.81. The top performers in the Dow Jones Industrial Average were Boeing, up 2.97%, Caterpillar, up 2.07%, and Walmart, up 1.42%. The worst performers in the session were Microsoft, down 4.23%, Salesforce, down 3.87%, and Apple, down 1.90%.

Rate-sensitive growth stocks such as technology have lagged market indexes. Among the S&P 500 sectors, the biggest losers of the day were technology, down 2.7%, the consumer discretionary index fell 2% and health care fell 1.63%. The best performers in the S&P 500 were Biogen, up 5.03%, Kroger, up 4.96% and American Airlines Group, up 4.54%. The worst performers were ServiceNow, down 9.31%, Lumen Technologies, down 7.67% and Bio-Techne, down 7.16%. On the other hand, in the health care sector, Moderna dipped more than 5%.

Main Pairs Movement

The dollar continued its losses on Thursday, but weakening risk appetite prevented the Greenback from falling further. The dollar’s intraday gains helped correct oversold conditions reached after Wednesday’s sell-off. The dollar index fell 0.2% to 94.791, its lowest since Nov. 10.

Sterling rose 0.11% to $1.372, its highest level since late October, as traders believed the UK economy could withstand a surge in COVID-19 cases and the Bank of England could raise interest rates again as early as next month.

EUR/USD hit 1.1481 and closed near 1.1460. The European economy is adapting to the coronavirus pandemic, ECB Deputy President Luis de Guindos said, and he expects inflation to fall below the ECB’s target in 2023 and 2024.

Gold retreated slightly to settle at around $1,820 an ounce, while crude oil prices were weighed down by weakness in the equities sector, with WTI at $81.70 a barrel and Brent at $84.07 a barrel.

Technical Analysis

GBPUSD (Daily Chart)

Cable surged for yet another day amid the weakness of the US dollar. The pair touched the daily high at 1.3749, and is now trading at around 1.3708 as of writing. It is said that the recent rally of the non-US currencies was due to a squeeze on the market’s excessive long-dollar positioning, as the recent depreciation of the Greenback has seemingly gone against the fundamentals.

On the technical front, the robust 200 DMA resistance forced Cable into a retracement back down just before mid-day on Thursday. The consolidating decline appeared to find support in Wednesday’s close near the 1.3700 level. The RSI for the pair reads 71.56, which is further in the overbought territory, indicating that a near-term correction is seemingly inevitable. Despite the potential headwinds, we believed that there’s still room for the Pound’s upside in the short term as long as the GBP/USD pair closes the week above its 200 DMA, but further catalysts are needed for the mid-to-long term growth of Cable.

Resistance: 1.3738 (200 DMA), 1.3830, 1.3900

Support: 1.3600, 1.3500, 1.3400

EURUSD (Daily Chart)

The EUR/USD pair advanced for the third consecutive day amid the worse-than-anticipated US Initial Jobless Claims and December PPI. ECB Vice President Luis de Guindos said the European economy is getting used to the coronavirus, adding that “perhaps inflation won’t be as transitory as forecast only some months ago.” Although he expects inflation to stay below the ECB’s target in 2023 and 2024, the investors still bet an early rate hike from the ECB when inflation loses control.

On the technical front, the Euro pair went up to around 1.1460 during today’s trading, but the upside momentum seems to be diminishing. The RSI for EUR/USD is still above 60, suggesting that the bulls are still in hope. If the pair managed to cling on the 1.1400 threshold at the end of the week, then we could expect the pair to reach the next resistance level at 1.620; however, if that fails, the Fed’s looking hawkish monetary policies may push the dollar up, again dragging the Euro pair to the downside.

Resistance: 1.1620, 1.1700

Support: 1.1200, 1.1000, 1.0780

XAUUSD (Daily Chart)

XAU/USD has pared back from early European session highs at the $1,828 mark in more recent trading, although it has for the most part, remained support above $1,820. Some traders have been disappointed at gold’s struggles to benefit from this week’s run of US dollar weakness. The winning streak has run out of steam ahead of this year’s $1830 highs.

On the technical side, market sentiments toward the yellow metal remain slightly optimistic. The remaining dollar weakness and the dismal equity markets underpinned the gold’s price at the short-term support of $1,820. The RSI for gold reads 56.80, showing that the demand for gold is still strong. The pair now lies above its 20, 50 and 200 DMAs.

Resistance: 1830, 1860

Support: 1800, 1785, 1765

20220114
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