European and US futures are trading flat, and it seems that the stock market is more in a holding pattern. Bulls are trying their best to keep the momentum going; however, they are finding it hard to push the prices back towards their record price level. Investors are hoping that the technology sector will take the lead once again, and we may begin to see inflation anxiety and concerns ebbing away.
In the currency market, we still see more bids coming in favour of the Euro as investors feel a lot more confident about the ongoing economic growth. One of the bigger catalysts supporting the rally for the EUR/USD is the massive jump in the German Business confidence data that came out yesterday. Also, the fact that coronavirus restrictions are easing off in Germany and in the rest of Europe is a further sign of economic activity picking up more steam. Finally, if we look at the coronavirus infection rate, it is also trending lower. Although, the threat of the Indian variant spiking in the region, still remains a threat for the Euro. Investors are hoping that the region’s lawmakers will continue to do their best to speed up the vaccination process, which could keep the Eurozone away from another misery.
As for the British Pound, there is no doubt that there is a lot of strength there as well. Although yesterday’s CBO Distributive Trades survey has brought some weakness for the GBP/USD data, traders are still more optimistic about the future path of the Sterling rather than being optimistic. The UK government is actively monitoring the Indian variant zone. So far, traders do not believe that the Indian variant situation is going to deter the government’s plan of further relaxing the coronavirus-related restriction.
In the commodity space, investors are still massively favouring gold prices. We discussed previously that gold bulls are in control of the price, today we have seen the gold bulls trashing the 1,900-price level, and this pushed the gold price to a four and a half month high. This is despite the fact that yesterday, we saw a big improvement in the US Consumer Confidence level, and most of the economic readings have been encouraging this week. But traders continue to believe that inflation remains the single biggest threat, and there is no better hedge against inflation than gold. If we look at things on the Fed’s side, there is still very little chance of seeing any change in the monetary policy.
Nevertheless, it is of significant importance to mention that gold prices are now overbought, and we could see some pullback soon. One of the catalysts that trigger a retracement in the gold price could be some sort of acknowledgment among the Fed members that they are close to debating the process of pulling back some of their coronavirus-related support. Any such comments could bring some strength to the dollar index, pushing the gold prices lower.
Bitcoin prices continue to recover from their recent hangover. The fact is that Bitcoin was due for a correction, and it seems like the sell-off may be over now as the price could be breaking above the 200-day SMA on the daily time frame.
On the Bitcoin fundamental side, things have started to improve. Firstly, the single biggest threat when the sell-off started was that we might begin to hear some of the bullish stance easing off among institutional traders. However, that is not what we saw; in fact, many institutions considered the sell-off as an opportunity and started to bag some bargains. Going forward, investors will keep an eye on three things when it comes to Bitcoin.
Firstly, it will be regulations. The US is unlikely to ban Bitcoin; however, regulations are much more likely to be tightened up. For institutional investors, that will be a sign of confidence because they will be able to get involved even more. Secondly, investors will keep a close eye on Bitcoin mining, how much energy is really from renewable sources, and how much of that is from fossil fuel.
The reality is that it is more likely that we will see the curve shifting towards carbon-neutrality than anything else, and that should continue to support the market even more—finally, the institutional money flow. Again, so far, we see a strong commitment from the US institutions, and there doesn’t seem to be any signs of that flow easing off any time soon