The U.S. dollar escaped higher this week on the back of promises from the U.S. administration to invest even more into long-term projects designed to sustain the economic recovery. So far, the U.S. aid this year totaled $1.9 trillion, but another $3 trillion is on the pipeline for long-term infrastructure projects.
Because of the speed America is moving ahead and the lack of reaction from other jurisdictions, market participants turned to the dollar as the currency that will reflect the future strength of the economy. With inflation picking up and the Fed already seeing one rate hike in 2022, the odds favor more dollar strength.
As such, the U.S. indices corrected yesterday. The Dow Jones settled at 32,490, the S&P 500 at 3,920, and the Nasdaq 100 above 13,100. Still, all indices are close to all-time highs, and the path of least resistance remains the upside.
In Europe, the Spanish index opened the day down 0.7%, the German Dax, while remaining bid, opened lower a half a percent, and the FTSE100 is seen flat at the time of writing this article.
Oil had another bad day yesterday – it settled below $58 and recovered some of the losses in the meantime. Gold and silver remain bid, while copper holds comfortably above the $4,000.
The day ahead will bring the second part of Fed’s Chair testimony, but the event is unlikely to create much of a fuzz. Typically, it is the first part that matters for traders, as the day to follow the Fed Chair’s words are more or less the same.
In the meantime, the European PMI’s were released and the German ones were surprised to the upside – both the services and the manufacturing sector. Also, in an encouraging sign, the employment in the French manufacturing sector rose to pre-pandemic levels.
Traders should keep in mind the main event for Europe and the common currency this week – the E.U. Summit scheduled to start tomorrow.
Markets to Watch
FTSE100, EURJPY, GBPUSD – markets in focus today.
FTSE100 remains bid while sitting at support given by the upper trendline of a bullish triangle. It seems like the index is waiting for a reason to pop, but that reason did not come yet. The jobs data earlier this week was disappointing, with the pandemic recession creating over 600k jobs losses in one of the most vulnerable age groups – younger than 34 years old.
The EURJPY cross finally pushed lower after flirting with highs over 130. However, every new attempt to break higher came in the context of two bearish factors. One was a rising wedge, seen in red on the chart above, and another a huge divergence with the RSI. Now that the price broke the lower part of the edge, a 50% retracement should follow.
The GBPUSD head and shoulders pattern points to even more weakness for the pair. After cable was rejected three consecutive times at the round 1.40 level, a trip to 1.33 should not be discarded.
Winners and Losers
GBP, EUR, AUD are the main losers so far in the trading week, while the USD wins across the board.