February ended with the U.S. dollar rallying across the FX dashboard. If the recent strength is the start of a trend or is just temporary, we will find out soon enough, as the week ahead is full of important economic events.
The theme in financial markets these days is the rise in yields in the U.S. and Europe. Higher yields bring unwanted tightening conditions, and the central banks are forced to double down on their easing in the period ahead.
Stocks should like more easing. The Dow Jones and the rest of the U.S. indices futures are up as the new stimulus in the United States comes closer to being released. The move higher in the futures coupled with the prospects of more easing in Europe has led to higher openings for major European indices at the start of the new trading week.
Commodities continue to trade with a mixed tone. While gold and silver remain weak, crude oil remains above $62, fueling inflation fears.
The trading week starts with a day full of economic events. The most important one is the ISM Manufacturing release in the North American session. Market participants will focus on the employment component of the report, as this is the NFP week and traders try to anticipate the number to be released on Friday.
Christine Lagarde will give a speech today, and the euro should move on her words. The common currency ended the previous month on a weak note, and the ECB is expected to step up its easing in the period ahead.
The first central bank to announce its statement this month is the RBA. The Australian dollar fell against the U.S. one to end February, on fears of more easing from the RBA. If that will be the case, we will find out soon enough.
Markets to Watch
Dow Jones, AUDUSD, silver – markets in focus today.
Dow broke horizontal support last Friday and now is back at the area, retesting it. The futures are up because of the positive news over the weekend that the House approved the new stimulus bill. Dow Jones needs to clear the area for a new attempt at the highs. If not, bears will try to push some more.
The AUDUSD had a weak end of the previous trading month. The pair broker the lower edge of a bearish pattern (rising wedge) and now threatens to move even lower. Gold broke lower at the end of last week, and that put pressure on the AUDUSD pair as well.
Silver is weak too. The move lower from the end of last week broke the neckline of an inverted head and shoulders pattern. The measured move of it points to more weakness ahead, putting pressure on commodity currencies such as the Australian dollar.
Winners and Losers
The USD is higher across the board, while equity futures attempt to come back from Friday’s lows; commodity currencies are the losers.