European futures are trading higher as traders pick up momentum from Wall Street, where we saw the Dow Jones index posting some strong gains.
It seems like traders are taking every retracement in the stock market as an opportunity to jump back in or double down on their riskier bets, and this is pushing the European and the US stocks higher, commented Naeem Aslam, chief market analyst at AvaTrade, this morning.
ECB Day
All eyes will be on the European Central Bank today as it makes a decision on its monetary policy. Market players aren’t expecting any sort of fireworks at this event, and it is very likely that risk balance may not change when the President of the European Central Bank, Christine Lagarde, speaks later today.
“The bank isn’t likely to have a full assessment of the pace of asset purchases until summer. Therefore, in this meeting, we are expecting the bank to make a no-decision,” Aslam said.
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“As for Christine Lagarde, the ECB President, it may just be an exercise of “jawboning,” he added.
Interest rates are more than likely to remain the same. However, the Euribor fixing could go above 0 per cent by 2023.
Crude Oil
Crude oil prices are moving lower on the back of the crude inventory data, which came out yesterday. The data has weakened the current trend further as oil prices were already suffering due to demand concerns.
“Now, we are looking at a situation where on the one hand, we have more than ample supply, and on the other hand, investors are worried about the exploding covid cases in India,” Aslam noted.
Crude oil price is now firmly below the 50-day SMA on the daily time frame, and it is likely that we may see the price falling further towards 57 handle.
SEC’s next move
Over in the US, investors will be looking carefully at the next moves by the US regulators. The lawmakers, the SEC, are going to make a tough decision over the filling of 13F and 13D, which shows a short position of big money in their quarterly disclosures.
“The dilemma is tough because if the SEC decides that big money doesn’t need to show their short positions, then there will be concerns of a less level playground. But if these filings continue to show their short positions, then we are likely to see several more episodes of GameStop,” Aslam explained.
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It is also believed that the SEC may actually change the frequency of these filings as well, he added.
“Reducing the frequency of these filings could once again give big money more advantage, which they already have. Nonetheless, the final decision about this matter is likely to become the talk of the town, and traders will be keeping close tabs on this situation,” he noted.
Geopolitics
On the geopolitical front, the Biden administration has put cold water on Iranian hopes.
For the past few days, investors have been feeling a lot better as they believed that perhaps the two sides would be able to form a deal.
“However, the Biden administration has come out and said that there are still gaps, and they need to be bridged before the old agreement, formed in 2015, can be enacted again,” Aslam said.
Investors like to see less geopolitical uncertainty, thus for them, the best possible outcome could be that both sides have an agreement and ease the ongoing tensions, he added.
Travel Sector
As for the tourism sector, we had IATA further widening its estimate for losses this year because of the soaring number of virus cases. The official body believes that the current coronavirus situation has delayed the normalization of global air travel.
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“Investors have been waiting for a day when they will see air travel returning to its previous glory. But the fact is that as long as we continue to see a dire situation such as what we are experiencing in India, we are likely to see other countries continue to adopt a more cautious approach,” according to Aslam.
“Travel corridors are likely the realistic scenarios for most of most countries now, and we may not see international travel returning to its previous level until next year.”
Bitcoin oversold
Bitcoin, the cryptocurrency king, is still suffering from the weekend’s hangover, and Bitcoin price is finding it difficult to recover its losses that it suffered over the weekend.
“The Bitcoin price needs to break above the 50-day SMA on the daily time frame and stay above this average. Otherwise, it is highly likely that the price not only tests its next psychological support of 50K, but in fact, it may break below that price level,” Aslam commented.
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The Relative Strength Index, the RSI, shows that Bitcoin price is oversold, which could be an opportunity for those sitting on the sidelines watching the Bitcoin price hitting new all-time highs.
“On the fundamental side, the biggest risk is what the SEC will have to say about Bitcoin as the Biden administration is working on some regulatory framework for cryptocurrency,” he said.
“The SEC has certainly crackdown on the SPAC craziness, and it is likely that it may take some wind out of the current optimism that we have among cryptocurrency traders,” Aslam concluded.
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