The trading week brought some interesting price action up to this point. On Monday, Janet Yellen, the U.S. Treasury Secretary, slammed cryptocurrencies, triggering a sharp selloff. The move lower triggered some nasty price action in the Nasdaq index which spell over some other indices too.
Yesterday, it was Fed’s Powell “job” to fix the harm done by Yellen. He testified in front of the Senate Banking Committee, and, sure enough, during and after his speech, the markets bounced. The dollar reacted promptly, and it resumed its trend lower, with the 90 level a key one for the Dollar index.
European markets moved in a tight range, with main indices in the United Kingdom, Spain, or Germany closing with little or no change. Even today’s opening shows more of the same thing, so the chances are that the markets will wait for the opening of the North American markets for the next move.
Commodities are on a tear higher. Copper and oil lead the pack, while gold lags the movement. As such, commodity currencies like the Australian and Canadian dollars trade with a bullish tone.
Today the markets will focus on Powell’s second testimony, but the markets are already familiar with what he is going to say. The Monetary Policy Report Hearings will likely bring some volatility in an already bid British Pound, so that is another market to consider. Crude oil inventories do matter for the CAD traders as well as for those watching how crude oil struggles to hold above the $60 level.
Markets to Watch
Gold, GBPUSD, AUDUSD – the markets in focus today.
Gold failed to participate in the rally seen in the commodity markets. If anything, it diverges for everything in financial markets, as it remains in a downward channel. Sure thing, the current consolidation looks like a pennant formation, but such patterns work best during a rising trend – this one is not such a thing.
The chart above needs no words anymore. The British Pound (GBP) is unleashed since the Brexit deal last December and since the vaccination campaign against the COVID-19 virus is one of the most successful in the world.
On top of that, the economic data out of the Kingdom is strong – only yesterday, the jobless claims fell more than expected, triggering another round of buying on the GBP pairs. However, at these levels, caution is needed for at least a couple of reasons.
First, the round 1.40 number. This is a milestone, and it is unlikely to be crossed with such ease. Second, the price action “escaped” the rising channel, breaking above its upper edge. That is the ultimate form of overbought levels, so a correction may be imminent.
0.80 looms large on the AUDUSD pair, but it is not there yet. The huge divergence with the RSI calls for caution, and one should not be surprised to see a retracement from the highs. With only a few days ahead of the end of the month and one week until the next RBA meeting, bulls are likely to book some profits.
Winners and Losers
USD remains the main loser, while the AUD and GBP the absolute winners.