Financial markets reacted with disappointment last Thursday when the Fed’s Chair, Jerome Powell, signaled that the Fed has no intention to control the long-term yields. As a result, the dollar surged, and stocks corrected. However, the move lower in equities reversed one day later, as the NFP report showed a surge in new jobs created by the American economy.
Stock market indices remain well bid. 2021 appears to be completely different than what the investment community expected, as the reflation theme (i.e., lower dollar higher stocks) suffers from the dollar diverging.
Gold broke below $1,700 on the back of a strong dollar. Investors favor new alternatives, such as digital assets, so gold remains under pressure. Crude oil, on the other hand, got another boost from last week’s OPEC meeting, as the cartel did not increase the supply. The decision sent the price of the WTI oil above $65, a move that will have direct consequences on inflation and inflation expectations.
No important economic data is due today. Therefore, the market will digest last Friday’s NFP report and prepare for the critical ECB meeting this Thursday.
Markets to Watch
S&P500, EURJPY, AUDUSD – markets in focus today.
The S&P 500 index looks weak here, despite the fact that it bounced from the lows last Friday. As long as it remains below the rising channel, the pressure to take the lows remains as the market moves in a tight correlation with the long-term yields in the United States.
The EURJPY rising wedge presents an interesting setup this week. While the market did not yet break the lower edge of the pattern, a move below the trendline will trigger even more weakness on the cross. What is interesting here is that the market also appears to form a triangle as a reversal pattern at the top.
One of the strongest currencies against the US dollar during the health crisis, the Australian dollar shows some signs of weakness. The market appeared to have formed a rising wedge, just like the EURJPY above, only this time the trendline is broken. Therefore, a move to 50% or even 61.8% is possible, as the market often travels such distances after the lower edge of the pattern is broken.
Winners and Losers
The dollar remains strong, especially after the NFP last Friday. On the flip side, the Euro is under pressure as the ECB may ease policy on Thursday.