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Buy the dip?

April 20,2021 06:56:45

Overnight Headlines

*Wall Street slips off record highs, Asian markets mixed

*USD hits six and a half week lows, even as yields pick up

*UK unemployment dips despite winter lockdown

US equities closed in the red to start the week, off record highs as weakness in the tech sector weighed on the broader market. Investors may be slightly more cautious as earnings season ramps up with guidance from the first quarter key in justifying lofty valuations.

USD continues to fall with the USDX trading below 91 and EUR/USD through 1.20 for the first time since 4 March. Technical levels have been breached on some of the majors with the JPY pinned near 108, GBP testing 1.40 and AUD around 0.78.

Market Thoughts – Nobody loves the dollar

Some well-watched technical levels in the most traded currency pairs are again on the radar as the greenback continues to suffer, even as its market interest rates (bond yields) are steady and in fact modestly rising. It seems last year’s theme of reflation is pushing back on dollar strength with any Stateside positive news discounted in the market, at least in the short run. The downward trend channel is under test in the EUR with sufficient euro negative news also now priced into the market, while GBP is on its seventh days of gains which has not been seen since July last year.

UK unemployment dropped unexpectedly for the first time in four months, though these figures have always been notoriously volatile and even more so with the furlough scheme making them harder to read. Interestingly, annual pay growth continues to strengthen but could be due to a fall in lower-paid jobs, a phenomenon we are seeing in other countries. Cable resistance stands around the 6 April high at 1.3919 so stay with the break higher as long as this holds.

Trade of the Day – The Darling Netflix

The spotlight will be on Netflix earnings today as one of the companies who benefitted the most from our voracious appetite for in-home entertainment – who hasn’t watched umpteen good (and bad) series over the last 18 months or so? Viewers continues to be drawn in despite the easing in lockdown measures with NFLX expected to have gained another 6.2 million new subscribers last quarter, after adding 8.5 million in the three months to December. The year-on-year comparison is more eye-catching, when the streaming service gained 15.8 million new paying customers. This is the crux of all those stay-at-home winners and how they fare as we return to normal.

Technically, we are trading near the top of the long-held range which we’ve been stuck in since last summer. Resistance sits at this month’s high around $559.75 and then the February high at $566.65 which we got to after the previous earnings. Prices then fell sharply, as has happened after the last few earnings releases, so could this be an opportunity to go short if this happens again? The risk/reward is decent with a stop at the top of the range and target at least the middle part.

Jamie DuttaAnalyst / Trader

"With extensive experience as a full time trader and financial market commentator, I have worked as a trader in top tier investment banks and trading houses, including Morgan Stanley and GAIN Capital trading Forex, Index derivatives. and Bonds. I combine technical analysis with a deep fundamental knowledge to identify trade set-ups. My real life experience allows me to break down the complexities of financial jargon and trading. This means everyone can better understand the compelling forces of greed and fear which are realised every day in countless ways across markets."

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