The current big theme in the markets is taking a breather today and it’s hard not see to why it shouldn’t pull up a chair, put a hand on one knee and take stock of where it’s been.

Stocks that underperformed at the height of the pandemic like airlines and bank have been steaming along and leading the market. For instance, European bank and energy sectors have risen 20% and 13% respectively this year. On the flip side, this pick up has come at the expense of the tech-fuelled Nasdaq which has slumped into correction mode with a 10% fall from its February peak, but is bouncing today and trying to navigate above the 100-day Moving Average.

Dollar-negative mood

The dollar is also retracing some its gains after four successive days of gains.

Overall risk sentiment remains improved with significant state-backed funds support for the market seen in China overnight, after it initially suffered losses of over 3%.

This weakness in the greenback has seen a correction in EUR/USD after the world’s most traded currency pair got close to its 200-day Moving Average at 1.1829, for the first time since May last year. A test of Monday’s high around 1.1932 offers a first line of resistance followed by the February lows in the mid-figure area of 1.1950.

“Vaccine trade” turns lower once more

Sterling is doing relatively well versus its major brothers this month, aside from the oil-propelled CAD and commodity-boosted AUD. It continues to push further against the euro, with clear divergence in the pace of vaccination and the central bank’s outlook.

There now even speculation that the Bank of England could lay out a tapering of asset purchases as soon as its meeting this month.

These clear GBP tailwinds are being reflected in GBP speculative positioning, with pound sterling longs now close to levels last seen in April 2018.

The February spike low in EUR/GBP is the next target for GBP bulls which comes in around 0.8538. The springtime lows from two years ago then appear to be the next area of support just below 0.85. Momentum indicators are strongly oversold across several timeframes, although these have eased in the very near-term time periods.

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