This week so far, the market participants have sold dollars since the markets opened on Monday. The dollar lost ground against all G10 currencies, but also against commodities like Gold.
European equity markets remain bid as they follow the price action in the United States closely. Spain’s Ibex trades well above 8,150 points, France’s CAC40 is above 5,500, and Germany’s Dax consolidates above 14,000 points.
The U.S. stock market is at new all-time highs as the lower dollar seen in the last days fueled the rally further. As such, the Dow Jones trades at 31,380 points, with the focus on further stimulus from the U.S. Congress.
Commodities confirm the main trend of the week. Oil and gold are both up, with the price of gold at major resistance today.
Moving forward, the big question is if this dollar weakness is here to stay or it is just a pullback part of a major trend higher? For example, the EURUSD pair trades at the time of this writing close to 1.21, still down two big figures from January highs but up over one big figure from February’s lows.
As the picture below shows, there are no important economic events scheduled for today. Whenever the economic calendar shows the events in yellow, it means that these are third-tear events with little or no impact on the market prices. Therefore, the stock market will likely drive the price action today as well.
Markets to Watch
As mentioned above, traders will pay attention to the resistance or support levels ahead of the dollar’s weakness. If they hold, we may see a reversal into the second half of the trading week.
The price of gold bounced strongly from the lows and now meets strong horizontal resistance. Judging by the chart above, the measured move of the bearish flag is not completed yet, but bearish flags are known as being “tricky” patterns. Another interpretation may be that the horizontal consolidation we see above is the right shoulder of a head and shoulders pattern. If that is the case, the current bounce higher makes sense because the price tends to retest the neckline most of the time.
The USDJPY bullish flag pattern worked like a charm. After the price reached the measured move, it also met dynamic resistance at the upper edge of a rising channel. From a technical perspective, the pullback makes sense and justifies the decline in the dollar we have seen so far in the trading week. However, the price has met dynamic support now, and we should not be surprised to see another attempt at the higher edge of the channel, either from the current levels or from lower ones.
Despite the terrible Canadian jobs data released last Friday, the USDCAD was unable to break the consolidation area. Instead of a pennant formation, the market appears to form a bullish flag now, with more weakness possible if the price retests the upper edge of the falling wedge pattern. A breakout and close above the flag opens up the gates for the measured move.
Winners and Losers
The dollar is the bigger loser and the EURUSD is the bigger winner – it is above 1.21 after finding buyers below 1.20. Naturally, the stock market advance is nothing short of impressive, as the weak dollar attracts new bulls.