The NFP week started with the equity markets making a U-turn when compared to last Friday’s closing. All major American indices recovered the lost ground last week and performed yesterday. The ISM Manufacturing release fueled the rally, coming out over 60, signaling strong economic recovery.
As the futures pointed to a higher opening in the U.S., the European indices outperformed too. The German Dax, in particular, had a strong session, even opening with a gap higher. The story in Europe these days is the birth of a controversial passport for vaccinated people. While a risky concept, it is designed to help economies with a big share of their GDP coming from the tourism industry (e.g., Spain, Italy, Greece).
Commodities underperformed yesterday, led by crude oil that dropped below $60 ahead of the OPEC meeting later this week. Gold continues to move with a bearish tone, putting pressure on the Australian dollar.
Both the London and the North American sessions are light from an economic data point of view. Only the Canadian GDP may spark some volatility on the CAD pairs, especially if the actual data deviates substantially from the forecast.
So, the focus will turn, once again, to the stock market. Keep in mind that the NFP week is typically characterized by tight ranges until Friday, so if we are to see something different, it should be the exception from the norm.
Markets to Watch
Gold, EURUSD, USDJPY – markets in focus today
Gold got rejected at $1,760, an area that turned out to be pivotal. From this moment on, only a move above it should be considered bullish. Otherwise, the main trend on the price of gold remains to the downside.
The EURUSD pair is back at the 1.20 level. The round number attracts the market, and the big question is what will the pair do here?
Last week, the ECB bought fewer bonds under the PEPP program than the market expected, despite ECB members calling for an increase in the pace of assets buying. Therefore, the chances are that we will see a significant increase this week, so the EURUSD should have more room to the downside in the days ahead of the NFP.
The USDJPY pair moved in a perfect rising channel in 2021. Part of the market’s risk-on environment, the pair kept forming higher highs and higher lows and reacted so far to both dynamic resistance and support.
At this point, the market meets dynamic resistance, and it is expected to retrace from here. However, a move lower in the USDJPY usually triggers a move higher in the EURUSD. If the correlation breaks, expect the cross, the EURJPY, to travel to the downside faster than any of the two majors.
Winners and Losers
The euro is the loser as it is correcting heavily across the FX dashboard. The dollar’s reversal continues after it consolidated yesterday in a tight range.