The new quarter started just like the previous one ended – with strong equity markets that encourage a risk-on movement across financial assets. However, the second quarter of the year may prove to be interesting because some divergences may form.
As usual, at the start of each month the Reserve Bank of Australia (RBA) reveals its monetary policy. It chose to do nothing this time, although it emphasized its accommodative stance despite a pick-up in global trade.
The American stock market indices remain elevated, with the Nasdaq100 recovering the lost ground and trading above 13,600 points, while the Dow Jones holds above 33,400 points. The bullish wave reached Europe, with the FTSE100 trading above 6,850 points and the German Dax index reaching a new all-time high literally every day.
Gold holds above $1,700 and appears to have formed a double bottom. Should we see more continuation and a break of the horizontal resistance, it may squeeze all the way back to $1,850 and more.
Oil found resistance above $60 and now trades in retreat. Should it clear $58 to the downside and more pressure is likely in short to medium term.
The day ahead marks the start of G20 meetings – always an important event for financial markets. In Europe, the Services PMIs will show the state of the services sector, if it improved or not in the last month.
Later in the trading day, the Ivey PMI in Canada is important for CAD traders, and the day will end with the FOMC Minutes. Out of all the events listed below, the FOMC Minutes will trigger some volatility, as these are the minutes that refer to the meeting where the most recent staff projections were announced.
Markets to Watch
Gold, AUDUSD, GBPUSD – markets in focus today.
Gold found important support in the $1,675 area and bounced twice from there. Effectively, the price action suggests a double bottom is in place, and the measured move points to $1,800 or even more. Currently, the price of gold faces stiff horizontal resistance at the horizontal neckline.
The AUDUSD pair is not able to bounce significantly from its recent lows. In normal times, the AUDUSD and the price of gold would be directly correlated, but that correlation ended in recent months. Traders should remember that while gold corrected from above $2,000 to below $1,700, the AUDUSD pair kept pushing higher, reaching levels above 0.8. Hence, one should not be surprised to see the two markets diverging again.
Cable gave it another try at the 1.40 level at the start of the trading week but failed. The move higher resembles a continuation pattern, so the bias remains bearish. The FOMC Minutes later in the trading day may prove to be a catalyst for the USD.
Winners and Losers
The European stock markets are the winners of the start of the trading week so far, and so is the euro, as it trades with a bid tone. On the weak side, the JPY remains offered across the board.