Financial markets come back to life after the slow start of the trading week. As of today, the economic data is important enough to move levels, as traders move into the second half of a short trading month.
The stock markets in the United States kept relatively well yesterday. Despite the ongoing power shutdown in Texas and neighboring states and a tough winter, the prospects are bright due to the monetary and fiscal stimulus ahead, as well as to the increased pace of COVID-19 vaccinations. As such, indices closed yesterday close to all-time highs.
In Europe, the stock market takes its clues from what happens in America. The Dax index still holds above the 14,000 points, a crucial level for the bullish perspective, while the Euro sees some signs of weakness, as it fell below 1.21 today after trading as high as 1.2160 area yesterday.
On the commodities and alternative investments, the picture looks as mixed as mixed can be. On the one hand, oil remains above $60. On the other hand, gold broke lower, trading well below $1,800. To add to the confusion, Bitcoin, a digital alternative investment for many, reached new all-time highs above the $50,000 level.
The United Kingdom’s inflation took another step higher this morning. Inflation data beat across the board, showing us that inflation picks up in yet another important economy. Other than that, the markets will focus today on the Retail Sales data in the United States for the month of January and the Consumer Price Index (CPI) in Canada.
Markets to Watch
The focus today is on the ability of the Dow Jones to hold above resistance, and on the dollar, to see if the market confirms if the reversal patterns on the USDCAD and USDCHF.
Dow Jones made a new all-time high this week as it popped higher at the opening on Monday. However, yesterday it was corrected and, unless we see something different today, the chances are that it will retrace to the blue area in the chart above, forming a possible head and shoulders pattern.
We’ve already covered this pattern in the past, saying that the price action after a falling wedge typically comes back and retests it. Well, here we are, as the USDCAD retested the wedge and got rejected. The CPI today is decisive for the falling wedge, which has a measured move equal to half the distance the price traveled during the wedge formation.
Another reversal pattern on an important USD pair – a head and shoulders on the USDCHF major. A close look at the chart above reveals that the market did not reach the measured move, which is the minimum distance the price should travel after such a pattern. Also, it is not unusual for the price to retest the neckline, something that just happened. On a bounce from the current levels, the market is bound to make a new marginal higher high while keeping the newly formed higher lows series.
Winners and Losers
Oil and Bitcoin remain the net winners, despite the fact that the dollar shows some signs of strength and forms reversal patterns. Gold is the undeniable loser so far this week.