Euphoria on financial markets continues unabated on the ECB day. Ahead of the main event of the trading week, the dollar remains offered, and stocks in the United States and Europe make new all-time highs.
The trigger for the recent risk-on moves came from the United States. Over the weekend, the Senate passed the new fiscal stimulus bill. Fast forward three days, and it was ratified by the House, being expected on the President’s desk for the formal signature this coming Friday.
The $1.9 fiscal stimulus bill is huge, and the way it passed both the House and the Senate is impressive. Financial markets took it as a sign of confidence and praised the Biden administration’s way of doing things, completely different from what the markets witnessed in the previous four years.
Dow Jones futures trade above 32,400, the Dax index in Germany opened above 14,500, and even the FTSE100 index in the United Kingdom is high this morning.
On the commodities front, gold made a strong comeback on the back of a lower dollar. The technical picture there improved significantly as the dollar remains offered. WTI crude oil is up above $65 and copper continues its recent advance, currently up 1.9% on the day.
Because this is the ECB day, the Euro is in focus. Currently, it trades with a bid tone against the USD and the JPY, but remains offered against the commodity currencies and the GBP.
Nothing matters today except the ECB in a few hours from now and the stock market’s evolution after the meeting. The U.S. new fiscal stimulus triggered a move higher in the European markets, somehow trading in sympathy with the U.S. stocks. The idea is that the new fiscal package will have spillover effects on the U.S. main trading partners, and the Euro area is one of them.
Today’s ECB meeting is important as recently it sent divergent signals to financial markets. On the one hand, higher U.S. yields triggered unwanted tightening conditions in Europe. As such, the ECB reacted with some dovish comments. On the other hand, in practice, it did nothing – will it act today?
Markets to Watch
Gold, EURUSD, USDJPY – markets in focus today.
Gold’s decline came in the context of a falling wedge that recently broke higher. Such a wedge is typically retraced at a minimum 50%, and often 100%. As such, bulls have a constructive case for more advances in the yellow metal.
The EURUSD pair is “dying” to get back above the magical 1.20, after trading as low as 1.1840 area at the start of the trading week. However, when it reached 1.1840, the pair was extremely oversold. Rarely do the market participants take a chance at such levels with only a few days ahead of the ECB. As for the current price action, 1.20 looms large.
The USDJPY pair reached the upper edge of a projected rising channel and corrected a bit. It printed above 109 earlier this week before reversing. Traders already have in mind the next week Bank of Japan’s decision and the implications on the yield curve control. Rumors have it that the central bank is willing to let the yield curve fluctuate more around the zero level, offering more flexibility, which should be bullish for the yen, if true.
Winners and Losers
The U.S. dollar remains offered, while U.S. stocks are the champions of the week so far – Dow Jones especially.