Last Friday ended with the market selling the USD heavily on the back of a worse than expected NFP report. While the unemployment rate declined and the U.S. economy did add some jobs in January, the December data was revised lower. As such, the dollar took a hit, but the stocks, as usual recently, traded in their own world and discounted the release.
The U.S. equity markets ended up last week on a high note. The strong earnings season fuels the stocks rally and investors do not mind paying high multiples.
The Dax in Europe remains bid. It follows closely the price action in the United States and continues to make all-time highs despite the fact that the German economy remains in lockdown more.
Crude oil’s bullish trend is impressive, to say the least. The WTI crude oil price keeps forming higher highs and now trades above $57.
The week has a slow start as no significant events are due. The only thing to look for in terms of economic data is the inflation data in New Zealand, but that has nothing to do with the European and the North American markets. As such, the focus until then will be on “digesting” the NFP report and positioning for the rest of the trading week.
Markets to Watch
On the commodities front, gold broke out of a bearish flag and corrected on Friday. The move higher on gold is seen on the EURUSD’s price action on Friday as well, as it bounced over the 1.20 level. On the equities front, the Dow Jones remains well bid, with the measured move of a pennant still pointing to higher levels.
Gold’s bearish break last week suggests more strength for the dollar. The measured move points to $1,700 and below, despite the fact that the yellow metal is supposed to offer a hedge against inflation. While the stock market keeps rising, suggesting a cheaper dollar and higher inflation, gold is telling us something else.
The EURUSD pair bounced from below 1.20 on worse than expected U.S data. The focus now shifts to the importance of the 1.20 level. A psychological, round number, it may take some time for the market to clear the level. It would not be unusual to expect a triangular pattern here; perhaps a symmetrical contracting triangle may appear in the days to come.
Dow Jones bullish price action suggests more strength ahead. No matter what the news is, stocks remain bid because there is no real alternative for investors in search of higher yields. A move to 32k this week should not be ruled out given the pennant’s measured move.
Winners and Losers
The dollar remains last week’s winner despite Friday’s correction. If the EURUSD slips back below the 1.20 level, the dollar may continue its gains and put pressure on investors on the stock market. Because gold keeps pressuring the downside, the dollar may surprise this week too.