It’s a slow start to the week and there is not much appetite across the equity markets. A part of this global lack of appetite is due to the inflation worries, but most of it, is due to the revival of virus worries as the Indian variant is now forcing many Asian countries to bring back the restriction measures on the table. And because the Covid problems result in a domino effect, other geographies will certainly not be spared from the consequences of the Indian variant.
Then, there are the rising inflation worries. We are in an unusual recovery cycle, as the uncertain and inequal recovery across regions is a slowing factor, while the skyrocketing commodity prices and production costs are threatening the supportive monetary policies due to rising inflation, and central banks may be asked to scale back their efforts before they reach their employment and economic recovery goals.
The US 10-year yield is slightly pushing higher on the back of a certain pressure from the Federal Reserve (Fed) hawks. Yet, there are no signs of particular stress at the moment, as the discouraging virus update keeps the Fed hawks somewhat contained. The US dollar is softer across the board, giving its major peers an opportunity to consolidate and extend gains.
The EURUSD is preparing to test the 1.2180 weekly resistance and has potential for an extension of gains toward the 1.2350 resistance. Cable, on the other hand, is also pushing higher towards the 1.42 handle.
Gold is gaining a solid bullish momentum above its 200-day moving average near $1846 per oz. Fundamentally, the combination of weaker-than-expected US jobs report, which requires the continuation of the loose Fed policy, and the rising inflation is supportive of gold prices in the medium run. But I am also wondering whether the sell-off in Bitcoin has a finger in the strengthening gold rally, as we started seeing bigger jumps in gold prices since we started seeing sizeable drops on Bitcoins. One major threat to the gold rally is an eventual pick-up in the US yields, and the rising inflation worries could trigger that. The next natural target for the gold bulls is $1900 per oz, but there could be a stronger resistance approaching this level. From a technical standpoint, the RSI indicator is pointing that gold hit the overbought market conditions and some consolidation, or correction at the actual levels could be healthy. Unless there is a rush to safe-haven currencies globally, gold needs a correction before gathering enough power to fight back the $1900 resistance.
Finally, cryptocurrencies are sputtering. Bitcoin sell-off gained some serious momentum after Tesla said it will not sell its cars against Bitcoin, unless it improves its carbon print, which won’t happen in the very immediate future. Because for that to happen, Bitcoin should make important changes to the way it operates and given that the decision comes down to the community of users, it will be a hard task to find a compromise.
Right now, we see a certain interest in PoS coins, which require less computing power, hence consumes less energy. Yet, one problem with the proof-of-stake is that it is believed to be not as effective in dealing with the worst-case scenarios, such as stolen private keys or network interruptions, and this could have a dramatic impact on the network activity and security.
Therefore, I would be surprised to see any of these cryptocoins threatening Bitcoin’s throne. If Bitcoin goes down, there is a chance that all cryptocurrencies come under pressure before long.
