Wall Street, Volatility, AUD / NZD, Lunar New Year – Talking Points
- US stock indices ended higher last week as volatility hit pre-pandemic low
- The Lunar New Year holidays see the majority of Asian markets still closed, lighter volumes?
- AUD / NZDThe rally may soon find significant resistance with a bearish cross of the SMA on the charts
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U.S. stocks rose last week as investors continued to bet on the global economic recovery, boosted by increased Covid vaccine deployments, soft monetary conditions and continued budget support. The Russell 2000 Small Cap Index yielded the most impressive index of the majors, with a weekly gain of 2.51%. A more notable development, however, is the collapse in volatility seen in US markets, reflected by the CBOE S&P 500 The volatility index (VIX) closing below 20, the lowest level since February 2020.
The collapse of volatility via the VIX – which is widely used as a “fear gauge– follows a strong corporate earnings season. So far, the financial results of the S&P 500 companies have far exceeded analysts’ expectations. The week ahead will see another round of quarterly results cross threads, with retail giant Walmart due to release figures on Thursday. Yet even with bullish earnings, some investors are puffing on stretched valuations.
Stocks may have more fuel to continue to climb despite high valuations amid continued support from central banks, especially the Federal Reserve. In a speech at the Economic Club of New York last week, Fed Chairman Jerome Powell once again assured investors that the favorable conditions are there for now. Long-term treasury bill yields ended the week higher, with the 30-year yield climbing above 2.0%, the highest mark since the start of 2020.
S&P 500 vs 30-year Treasury yield
Data source: BBG
Monday’s Asia-Pacific Outlook
Monday, as well as the entire week ahead, will likely be calm in the APAC region. Exchanges are closed in China, Hong Kong, Singapore and South Korea as traders and investors celebrate the Lunar New Year holidays. Currency volumes may also see less activity which could also translate to lower volatility on many currency pairs. Having said that, making headlines that could boost markets quickly is likely to be more volatile due to falling liquidity levels.
Therefore, the calendar of economic events this week is also lighter than usual, but the start of the week can see the New Zealand dollar react to BusinessNZ’s Service Performance Index (PSI) report, which is expected to cross threads early Monday morning, according to the DailyFX Economic Calendar. Japan will also release its GDP data for the fourth quarter, with analysts expecting an annualized increase of 9.5%, down from 22.9% in the previous quarter.
AUD / NZD technical outlook
Despite the holidays and weak impressions of economic data for the coming week, AUD/ NZD presents an interesting technical configuration which can give way to a exploitable movement. The 23.6% Fibonacci retracement of the December to January move appears to have halted last week’s rally. However, the immediate upward trajectory looks set to increase.
However, this advantage may soon find significant resistance. The 20 and 50 days Simple moving averages appear to be on track to complete a bearish cross this week, which could dent AUD sentiment and hamper further gains. Additionally, a trendline from the August swing high is also a test for the bulls. Admittedly, the MACD is pointing to a near term rise, with a bullish cross above its midline on the charts in the coming days.
AUD / NZD Daily Chart
Chart created with TradingView
AUD / NZD NEGOTIATION RESOURCES
— Written by Thomas Westwater, Analyst for DailyFX.com
Contact Thomas, use the comments section below or @FxWestwateron Twitter