Overnight Headlines

*US stocks ended in positive territory after initially suffering heavy losses

*USD advanced above 94 though closed off its high

*Bitcoin surged through $53,000 to it highest level since mid-May as regulatory fears eased

US equities started the day firmly in the red, but sentiment improved through the day. Defensives like utilities and consumer staples led the way, while energy and materials lagged. The S&P500 is now up on the week. The positive mood has spread to Asia with indices up over 1% and Hong Kong tech bouncing back. European and US futures are pointing to another days of gains.

USD appreciated against most of its peers, advancing for a second straight day. The high of the day touched resistance around 94.44 and fell back to close at 94.26. EUR/USD took the brunt of the selling, falling to its lowest level since last July at 1.1529. GBP also tumbled but has held above the July support at 1.3571 so far. NZD was the worst performing major on a less hawkish RBNZ, slumping below 0.6880 before bouncing.

Market Thoughts – Putin steps in…

Gas markets whipsawed yesterday (and also made the main news headlines) taking markets with them too. Natural gas prices shot higher early in the day to trade at close to 10 times their level from the start of the year. This prompted a sea of red across major equity indices. But prices reversed abruptly later when Russia’s Putin hinted that Gazprom may increase supplies to help Europe.

Still, European governments are increasingly worried that sharp energy price rises could endanger an already fragile recovery. That Europe is relying on a smiling Putin probably says everything. The euro plunged to new lows and the dollar will always be the go-to currency in this scenario. We note the debt ceiling also remain an issue with an extension for just a few weeks. Tomorrow’s payrolls are of course the next focus.

Chart of the Day – EUR/USD to new lows

Although the euro can hold a slight haven status at times, the initial risk off move yesterday hit the single currency hard. Further out, the ECB is likely ready with a new QE program which means we could see proper policy divergence if the Fed delivers on tapering.

Having consolidated around 1.1604 earlier in the week, EUR made new year-to-date lows at 1.1529. There are no major support levels until the 1.15 level with the halfway retracement of the March ’20 to January ’21 run at 1.1493. There’s not so much down to 1.14 either, but prices are again in oversold territory through the lower Keltner channel and touching 25 on the daily RSI. First resistance is at 1.1604, then 1.1663.