Financial markets continue their stretched positioning as yesterday’s CPI or inflation in the United States failed to bring the much-needed volatility. Because this entire week is poor on relevant economic data, traders focused on the stock market and on possible stops being triggered on various markets.
Despite Fed’s Powell giving a speech on Wednesday and the CPI release, the U.S. stocks did not do anything. Every dip continues to be bought while the main indices remain close to all-time high levels. The same is seen in Europe, where the Dax in Germany hovers around 14,000 points, lacking direction.
Consolidation continues on the commodity markets, too – neither gold nor oil could make significant breakouts in the last 24 hours. However, as we come closer to the end of the trading week, the dollar may show some signs of life, both from a fundamental and technical perspective.
Today’s economic calendar does not look impressive, but the devil sits in the details. Two crucial reports are due later today – one from Europe and one from the United States.
In Europe, the EU Economic Forecasts is a quarterly report that delivers economic projections for the next couple of years. It is closely watched by traders to see if there is something different in terms of economic output or inflation, as they matter for the Euro.
From the United States, the Fed Monetary Policy Report may also surprise. While marked as third-tier data, the report is known as able to switch the market sentiment on the dollar.
Markets to Watch
Today’s focus is on the price of crude oil, which consolidates just below the pivotal $60 level, the USDCAD and the USDJPY pairs.
The crude oil price rally in 2021 is nothing short of impressive. The market trades in anticipation of faster economic recovery and, thus, stronger demand. After a bullish flag pattern ended earlier this year, the project measured move points to $60. While not quite there, from a technical perspective, the bullish pattern should be completed. Is it mandatory to see $60? No – but the round numbers usually attract interest. At this point, we may interpret the long consolidation on the bullish flag as a possible left shoulder of a future head and shoulders pattern. Ideally, the market will hit the $60 first, and bears may want to watch for reversal patterns such as bearish engulfing, evening stars or Doji candlesticks.
Oil and CAD have a direct relationship – they rise and fall together. If the support seen on the USDCAD pair holds, as it retests the 2-4 trendline of a falling wedge, then the price of oil should find stiff resistance at current levels. A rising wedge is typically retested, before the market reverses and aims for the measured move – half of the distance that the entire pattern traveled.
After forming a double top against dynamic resistance, time has come to see if the USDJPY can hold inside the rising channel. If yes, the focus shifts to a possible move into the upper half of the channel, where the market may push against dynamic resistance again.
Winners and Losers
So far in the trading week, with only two trading days left, the dollar remains the loser as it is down literally against every other major currency. G10 currencies are the winners, with the Australian dollar, once again, outperforming.