BTC/USD, XAG/USD (Silver), XAU/USD (Gold), AUD/USD, GBP/USD: Technical Outlook, Edition #28 (21/06/21)

Monday markets continued their taper tantrum throughout much of the Sydney/Asian trading session today - although a lively European morning session has breathed new life in the markets. Read on...

Hawkish Fed expectations appear to influence market participants to scale back risk and correctly highly-valued assets

Conviction trades that have so far dominated trading activity in 2021 are particularly at risk of further corrections in price.

Strong economic growth and cheap borrowing have been a boon to both bears of the USD and long-term bonds and bulls of equity assets (e.g. the stock market).

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However, all things must come to an end. 

Proceeding the FOMC signalling a shift in monetary policy to begin tapering fiscal stimulus in 2023, we saw ensuing mayhem across the financial markets resulting from an aggressive rebound in USD strength.

Read between the lines and examine what this means for the Greenback in this week's trading session

Provoking the 'taper tantrum', we saw more hawkish rhetoric produced from the Fed. With a torrent of noise from the Fed planned for this week, expect even more volatility in the week ahead.

Long-dated Treasury yields also fell on Friday, with the markets reacting to what it perceives as the US central bank's admittance to accepting inflationary pressures seriously.

For many other securities, the USD breakout presents us with two critical points of interest:

  1. All markets are poised to see if the USD begins a multi-leg bullish reversal

  2. Will the Fed settle volatility and reiterate that tapering quantitative easing (QE) is not due for another 18 months?

This coming week will place the US in the spotlight as Fed speakers convene to discuss the possible ramifications of curbed QE and revised interest rate expectations.

It is bound to cause some volatility, as FED speakers push for and against the hawkish interpretation of these newly revised FED expectations.

We'll now discuss the implications of the FOMC and other markets

It's apparent that the markets are waiting for the US to make the next move - all charts are becoming more correlated with risk aversion.

Deleveraging may be wise to minimise volatility risk in case USD gains further upside momentum. 

Thus, these subsequent European and US trading sessions are likely to see a heightened level of risk aversion as the market witnesses the FED seriously address inflation pressures and reverse QE to reduce the risk of overheating. 

The signalling of changes to fundamental monetary policy coincides with what we see on the charts below as speculators deleverage against a strengthening US Dollar and observe these correlations forming. 

Silver, XAG/USD

Gold, XAU/USD

Bitcoin, BTC/USD

Australian Dollar, AUD/USD

Great British Pound, GBP/USD

Q's Conclusion

Although tonight's European session began with a healthy spring, it may be too early to conclude that the recent moves across risk assets result from the 'taper tantrum'. 

We draw this interpretation from a comparison with the 'taper tantrum' that occurred when Fed Chair Bernanke signalled Fed paring of bond purchases associated with their fiscal stimulus policy in 2013. 

The reaction to reduced QE in 2013 saw 10-year Treasury yields soar from ~1.6% to over 3%, resulting in extreme volatility across the prices of securities. 

At present, the 10-year US yield is moving lower and leads the likelihood that the recent moves on asset markets appear more akin to long-overdue corrections - rather than the beginnings of a bullish reversal.

According to bond market analysts, there is a shared sense of relief that the fed and other central banks are becoming more vigilant to the threats of running inflation too hot. The move lower in long-dated yields is reflective of this belief.

See you again for the next update.

- q


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