US stocks have opened modestly in the red today, while European bourses have been faring worse this morning reflecting the divergent views for the region’s economies based on their progress in the vaccine rollout. The market is also having to consider vaccine diplomacy that is currently pervading the rising number of infections in Europe. The EU’s threat to curb vaccine exports may not be followed through this time around but it definitely remains a drag on euro sentiment.

Dollar technical level in focus

This environment is helping the dollar for sure, as the greenback makes its way past the widely watched 200-day moving average (92.63) on the DXY. With US yields supportive of dollar sentiment so far this year, any fall back in those yields is likely needed to curb the USD’s attractiveness. The final estimate of Q4 GDP ticked up two tenths to 4.3% while the weekly jobs numbers from across the pond were also positive, although we saw a similar decline in the initial jobless claims four weeks ago.

If the bulls can hold above the 200-day moving average, then they will take aim at 93.00 as the next level above which could then see momentum indicators become a little stretched.

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Equity and fixed income rebalancing

It’s quarter-end soon (where did those few months go!?) which means many pension funds have to rebalance their portfolios due to the massive selloff in bonds over the past quarter. Essentially, fund managers have to top up their holdings of fixed income which means selling down part of their equity holdings. This is also magnified by the solid performance of stocks over the last few months. Estimates as to the quantities to be bought range between $80 billion to over $140 billion and the peak of rebalancing is generally around the 25th of the month ie today!

However impactful this is, we see that the S&P 500 is sitting on its 50-day moving average which has acted as decent support over the last several months.

Bearish momentum has picked up recently so if that moving average fails to work its magic again, the 3,800 marker beckons.

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