Energy stocks surged as oil traded near $50 a barrel

6 January 2021, 03:24

Market Focus

Stocks rose and bonds dropped amid key elections in Georgia that will decide which party controls the U.S. Senate for the next two years, setting the scope of President-elect Joe Biden’s agenda.

In a session marked by thin trading volume, the S&P 500 rebounded after suffering its worst start to a year since 2016. Energy stocks surged as oil traded near $50 a barrel, and the Russell 2000 Index of smaller companies jumped 2%. While markets have been factoring in a greater chance of a Democratic sweep in Tuesday’s election, some analysts see the potential for increased volatility. In anticipation of the outcome of the vote, which will likely be known on Wednesday, Treasury yields climbed — with a key curve measure reaching its steepest level in four years.

Whether or not Wall Street is getting more comfortable with the idea of Democrats taking control of both chambers of Congress, the scenario implies the possibility of a more generous stimulus package. That could also potentially lead to upward pressure on inflation and interest rates as well as higher taxes to pay for fiscal aid. Conversely, should the Republican incumbent win re-election, the party would have enough votes to block any Biden initiative.

Market Wrap

Main Pairs

A gauge of the dollar traded near its lowest level since February 2018 amid corporate hedging flows, rising inflation expectations, and commodity currencies surged following an agreement by oil-exporting countries to cut supply. Treasury Secretary Steven Mnuchin called NYSE Group Inc. President Tuesday to express his disapproval with the exchange’s surprise decision to spare three major Chinese telecommunications companies from being delisted, according to two people familiar with the matter.

The euro trades up 0.4% to 1.2300 after trading as high as 1.2305. Hedging flows were two-way in the currency with sellers of the pair at 1.2300/1.2280 while buyers of the pair emerged at ~1.2260, upcoming option strikes at 1.2300 are also supportive.

The pound is up 0.4% to 1.3630; Sterling saw corporate action ~1.3580 according to an internal trader. USD/JPY is on pace for a three-day drop; fell as much as 0.5% to 102.61, the lowest since March, after decent-sized corporate sales materialized near 103.00, the New York trader said.

Technical Analysis

XAUUSD (4 Hour Chart)

On Tuesday, the gold extends its previously edged up position to an almost two-month high at 1952.69 which was set up to secondary pivot resistance as we mention yesterday. In the meantime, the gold market rallied also be driven by greenback depreciation pressure as it fell under 90. From the Moving Average perspective, short- and long-term indicators remained upward trend, moreover, short term indicator turn sharply ascend in recent. For the RSI aspect, the indicator has set up over 70 that settle gird 75 in the overbought zone, suggesting over torrid at this stage. Therefore, we expect the gold market would take a break in the short term while the market seemingly overextended at the current stage.

Resistance: 1955, 1965

Support: 1936.6, 192.17, 1904

USDCHF (4 Hour Chart)

The Swiss franc has dropped to 0.87833 which is 5 years ago at the lowest level. As price action, swiss franc breakthrough yellow upward trend supports that tamp down its position to currently low. For the RSI aspect, the indicator drop to 36, suggesting bearish guidance at this stage. For the Moving Average aspect, the short term indicator was death cross long term couple of days ago and short one asymptotically fell that following investor sentiment ahead.

Indisputably, Swiss franc appreciation to record-setting rock-bottom amid weakness greenback and dollar traumatize by rising inflation expectation. At the same time, combing indicators suggest that expect ongoing bearish ahead for the short run at least.

Resistance: 0.8795, 0.8813

Support: 0.8775

AUDUSD (4 Hour Chart)

After unexpected slipped to 0.7647 bottoms yesterday, Aussie pulls back to a 2-year-long peak at 0.7778 and set around 0.7763 at market close, advancing by 1.1%. Meanwhile, net AUD short positions increased moderately last week but remain well below their recent highs. For the RSI aspect, the indicator close at 64 girds which suggesting a bullish sentiment for the short term at least. Meanwhile, short-term SMAVG is still propelled at an upward slope, supporting short-run market momentum.

Of note for the weeks ahead, Sino-Australian tensions could be a stumbling block for the Aussie and the RBA’s QE policy could be tempering the attraction of the AUD.

Resistance: 0.7778, 0.7802

Support: 0.7691, 0.7647, 0.7621