Your wealth report for the first half of 2021
2021 sure is flying by quickly. Within a short period of six months, we saw the stock market reach record highs while major currency pairs were pushed to extremes. At this juncture, perhaps it’s appropriate that we do a quick stock take to see how things have been doing.
A Quick Review
Since we went bearish on the USD last year, the Greenback has been falling as expected with the Dollar Index (DXY) sliding by 8.18%, largely due to the increased fiscal support with Biden proposing some $5.4 trillion in new spending over the next 10 years. Our bullish call on Gold with its reputation of being a hedge against inflation and currency debasement has played out well with it surging 26.34% at the time of writing. Rounding up, our bullish call on the SPX due to the large fiscal stimulus measures has also been working out well with the SPX growing steadily by 15.3% to date.
Looking Ahead
With us halfway through the year and much focus placed on battling the pandemic worldwide amid the vaccine rollouts, there are a few upcoming key events that you might want to brace yourself for in June as an investor.
One would be the Central banks’ interest rate decisions by the Bank of Canada (BoC) on 9 June, as well as European Central Bank (ECB) on 10 June, Fed on 16 June, and the Bank of England (BoE) on 24 June.
In the BoC’s latest policy meeting, the central bank signalled that it could hike interest rates as soon as next year and taper the pace of bond purchases. Meanwhile, BoC Governor Tiff Macklem also recognised the risks of higher inflation with new forecasts showing that the central bank expects the biggest persistent overshoot of its 2 percent target in at least two decades. While BOC is likely to keep interest rates unchanged in this upcoming meeting, investors should be keeping a close watch on consistency in their shift towards a more hawkish stance which could boost the CAD, while keeping a lid on the stock market’s performance.
On the other hand, the ECB is less aggressive in their stance, and is keeping to its bond-buying program, even stepping it up in the coming months to encourage spending and investment. In its April policy meeting, they provided reassurance in maintaining the accommodative monetary policy stance while keeping interest rates at current or lower levels until it has seen inflation outlook converge to levels close to but below the 2% within its horizon projection. In this meeting, we are likely to see the ECB maintain its stance. Similarly, the Fed Chairman Jerome Powell has been consistently dovish in the FOMC meetings and we should see interest rates remain unchanged.
Investors can anticipate the tightening of the monetary policy by the BoE as Britain’s economy is expected to grow the most since World War Two this year. According to Reuters, the BoE raised its forecast for British economic growth in 2021 to 7.25% from February’s estimate of 5.0%, which would be the highest annual growth since the start of 1941. The pace of economic recovery could cause the central bank to scale back on its trillion dollar bond-purchasing programme though we are not likely to see BoE pull the plug on the fiscal stimulus as the economy remains on track for recovery. Apart from the central banks’ interest rate decision, other key economic data includes GDP readings from Australia, Eurozone, New Zealand, and Britain, as well as US, Canada, and Australia’s labour market data. With these events in mind, we might have just spotted
a good setup on the USDCAD which you may consider for your portfolio.
USDCAD is currently holding above a key support level at 1.20400. This support level was last visited back in September 2017 and It also has not been tested for the last four years until recently. Our pivot at 1.20400 also falls in line with a key 100% Fibonacci extension level.
With price holding below the long-term moving average and MACD indicator below zero, we can expect to see further bearish momentum persisting in this currency pair. A weekly break and close below our pivot at 1.20400 could possibly see price push even lower towards our 1st support at 1.13240, and even our 2nd support at 1.04140 (both of which are key Fibonacci confluence zones).
Otherwise, a strong rejection and bounce above our pivot at 1.20400 would likely see price rise higher towards 1st resistance and moving average resistance at 1.27000. Surpassing 1.27000, there is a slight possibility of price rising towards 2nd resistance at 1.33800.
In Focus: Crypto and Altcoins
As Cryptocurrencies get increasingly popular and find their way into our lives, it’s quite often we hear the question raised if they should form part of one’s portfolio. As always, it’s paramount to understand what you’re buying before diving in.
In a nutshell, Cryptocurrencies are digital currencies and serve as electronic payment systems used to purchase goods and services. They function on the blockchain technology which simply put, can be imagined as a huge public ledger that has a list of all transactions of that cryptocurrency ever made. Every time a new transaction is made, it is broadcasted to all computers within the system, who will verify the transaction via complicated mathematical algorithms. Once this transaction is verified, the book is updated and broadcasted to all computers in the system. What this means is that, with this decentralised structure, no one actually has control over the ledger.
Although Bitcoin is all the rage in mainstream media, there are many other cryptocurrencies out there, each bringing a new piece of innovation to the table. These are termed as “Altcoins”, or “alternative coins”. The reason why they are important to consider is because each has its different uses and may present themselves as a possible asset for investment.
One such Altcoin is Ethereum (ETH) aka Ether. Ether is the secondlargest cryptocurrency by market capitalization and can be thought of as a “platform” or a network used to run or develop applications. Ether is the cryptocurrency of the Ethereum network. Just like Bitcoin, Ethereum runs on a decentralized structure and has all the traits of a cryptocurrency. However, delving deeper will show us how it’s slightly different. Firstly, Ethereum has a well-known founder and an expanding developer community. This is important as having a team behind the development of Ethereum allows growth of Ethereum to be continuous and sustained. It is also a platform that can support smart contracts and decentralised finance projects; meaning that Ethereum can be used in many different sectors and has potential for growth beyond electronic payment.
Another Altcoin to watch out for is Cardano (ADA). Cardano is one of the up-and-coming coins as its blockchain is the first successful proof-of-stake consensus mechanism known as Ouroboros, which is less energy intensive than the proof-of-work algorithm that runs behind the scenes of Bitcoin. Cardano also takes pride in its peerreviewed research process that ideas must go through before being validated. This makes Cardano’s blockchain both environmentally sustainable and verifiably secure.
Undoubtedly, cryptocurrencies do indeed present a lot of potential to the world with its game-changing technology. However, as with all asset classes, there are potential risks involved and one in particular that’s very prevalent: Volatility.
We can see this happening in many scenarios such as countries banning the use of cryptocurrencies due to its decentralized nature attracting criminal activity. We can also see this being a problem with increased speculation. In April this year, Bitcoin fell by almost 15% after reaching a record high US$64,000, it then took a second plunge when Tesla CEO Elon Musk announced that Tesla would stop taking bitcoin as payment. These are not isolated incidents and could very well happen time and time again in the cryptocurrency markets.
Cryptocurrencies are likely here to stay and as they find their footing in the world, it is important to note that they are not yet fiat currencies and as such, should fall within the higher risk portion of your portfolio.