The U.S. Congress approved over the weekend a new round of fiscal stimulus worth about $1.9 trillion and sent a buying spree on the equity markets. Because of the size of the package and the importance of the U.S. equity markets to the international financial markets, the news impacted other markets too.
As such, the Dax in Germany closed at record highs, well above the 14,000 level, and FTSE 100 traded above 6,700. Yet, some interesting divergences formed. For example, while the Dow Jones index made a new all-time high, the Nasdaq 100, the tech index, continued its correction a week or so ago. Also, the U.S. dollar held strong, gaining across the board, both against developed and emerging markets currencies.
On the commodity front, gold broke below $1,700. From a technical perspective, it is at a confluence area, meeting both dynamic and horizontal support. Crude oil trades above $64, and silver barely holds the $25 level.
Just like yesterday, today is another day with irrelevant economic data. The market participants, therefore, have time to prepare for the ECB meeting on Thursday, the key event of the week.
Until then, it is worth mentioning that the ECB has sent some mixed messages lately. On the one hand, it signaled its intention to ease some more, as suggested by some speeches of its members. On the other hand, judging by the weekly PEPP data revealed yesterday, the ECB did not step up the bond-buying. As such, the Euro found a bottom currently, bouncing from 1.1840 (EURUSD) and pressuring 130 (EURJPY).
Markets to Watch
Silver, GBPUSD, EURUSD – markets in focus today.
Silver remains week while in the bearish channel. Ever since it broke the neckline of a head and shoulders pattern, it trades with a week tone. Naturally, it all depends on what the price of gold does. Gold broke below $1,700 yesterday, and more weakness should trigger similar price action for silver.
An interesting setup forms on the GBPUSD pair. Cable broke the neckline of a head and shoulders pattern as well, but with little or no follow-through. Because the market is close to the 1.40 round number, we should not be surprised to see a reversal and an invalidation of the pattern. A new lower low puts pressure on the downside, but a reversal above 1.40 suggests another attempt at the highs.
Another market, another head, and shoulders pattern. This time, we talk about an inversed head and shoulders, with the price action currently consolidating in the right shoulder. The USDCAD pair is one of the weakest on the FX dashboard for the single reason that the WTI crude oil price remains in a bullish trend. It traded above $64 with little or no pullback, and that keeps the CAD bid against other currencies.
Winners and Losers
The U.S. dollar remains the winner of the week so far, especially as it diverged from the equities during the first day of the trading week. Also, the CAD is equally strong. On the flip side, the JPY continues its decline, as the USDJPY exchange rate traded above 109 earlier today.