Market Reversals After Option Expiries
By the market close tonight a lot of traders will heave a sigh of relief and will be glad to turn their computers off. The week started off with everyone knowing that there would be a quiet start as we all prepared for the central bankers to tell us about their change or lack thereof to current monetary policy decisions.
The RBA kicked the week off stating that significant monetary support would be required for longer, which then led us into the FOMC where Chair Powell reiterated that the Fed would keep monetary policy very accommodative until they have substantial evidence that their policies are meeting their dual mandate. Yesterday the Bank of England and the Bank of Japan also held rates, with the BoE having the good vaccine rollout in the UK as a reason to be optimistic for the future, and the BoJ gave forward guidance that they are willing to allow yields to fluctuate within a mildly raised target range. All of which was anticipated by the market analysts so the moves that followed the FOMC that were then quickly undone is a signal that the money markets are not entirely on board with the “keep rates on hold” theme. The sentiment is that of a need for central bankers to view the reflation trade as a step towards near-term inflation and that interest rates will need to adjust sooner rather than later.
Today the US dollar index completed its retracement of the Wednesday Post-FOMC drop touching the $92.10 to $92.20 range before the London session traders took profits ahead of the US equity open and the release of Fed Chair Powell’s op-ed in the Wall Street Journal.
The Fed did release a statement explaining the Supplementary Leverage Ratio (SLR) relief would not be extended past March 31st and that they will seek comment of measures to adjust the SLR. This sent the US Treasury yields higher from 1.6998% to 1.7424% as fixed-income speculators feel the banks will have to sell off some Treasuries in the coming weeks.
Europe and the UK are having legal wrangling’s over the island of Gibraltar and this is adding pressure to the euro and pound but both the EURUSD and GBPUSD look to be directed by the fluctuations in the US dollar markets, with the EURGBP signalling that the euro is stronger than the pound today. However, on the EURUSD chart, I have been keeping my eye on a trend line that originates from the start of March which today has been retested after a clean break, signalling that a continuation lower is very much on the cards still.
US30 Year yields are slightly lower today and at the time of writing the US10 Year yields have come back down to unchanged for the day.
Post the quad witching sell-off in the US equities, the Nasdaq and S&P500 have both risen out of their initial opening balance ranges and are up 0.57% and 0.19% respectively.
They have both put in decent support and the H4 charts are showing the US session to be very bullish for the indices. The tech-based Nasdaq is around 7% off its all-time highs and today's price action with a bounce of market structure could be signalling further upside. There is a lot of liquidity resting at 13000 but so far today 12900 has capped any advance higher. A late dash to the levels at the market close wouldn’t be out of the question.