The main theme in financial markets yesterday was the increased divergence between the U.S. dollar’s performance and the U.S. equity markets. While the dollar rose across the FX dashboard, the equity markets made a strong comeback when compared to last Friday’s close, fueled by hopes of even more stimulus.
European markets, therefore, traded with a bit of a tone, too, following what the futures in America showed. The Dax index in Germany outperformed, threatening to move to new all-time highs also fueled by a lower exchange rate on the EURUSD.
Silver ended up lower on the day, following the bearish tone in the gold price. While gold did not break lower yet, the rush in silver and $GME reversed dramatically, with most retail traders losing their shirt on the speculation venture.
The day is packed with important economic data. To start with, while not marked as a relevant event, the CPI Flash Estimate in the Euro area will likely move the Euro. Inflation is expected to rise by the most on record, and it remains to be seen how much is already priced in the Euro exchange rates.
The PMI Services data in the United Kingdom is forecast to be released at an abysmal 38.8. However, due to the fact that the country is in economic lockdown, the market may choose to ignore this data too.
OPEC meetings start today, and the price of oil is already in a bullish mode. Should we hear some hawkish statements, the rally may continue further.
In the United States, the ADP (private payrolls) and the ISM Non-Manufacturing will help traders forming an idea about the upcoming NFP report on Friday. After all, this is the NFP week, and the main event of the week is the last one.
Crude oil inventories round up the North American session, another reason to keep an eye on the oil market.
Markets to Watch
The 1.20 level provided major support for the EURUSD pair, so that is one market to keep an eye on as many shorts may be triggered on a move lower. Oil and the Dow Jones are on the radar today, as events in those markets are important enough to generate increased volatility.
A major head and shoulders’ formation on the EURUSD appears to have broken the neckline. The measured move points to lower levels, but the EURUSD pair must first clear the 1.20 area. Should it move below, it may trigger some weak stops as the pair already eased from 1.23 to 1.20 in less than a month.
The Dow Jones index bounced strongly since last Friday’s close and now threatens to make a move to a new all-time high. The index consolidates in a tight area that looks like a pennant – a continuation pattern with a measured move above the recent highs.
WTI Crude Oil
The price of oil broke out of a bullish flag recently and also consolidated in a tight range ahead of the OPEC meeting later today and the U.S. crude oil inventories. A possible pennant may act here as well as a continuation pattern.
Winners and Losers
The markets keep a relatively tight range, but so far in the trading week, the dollar, the U.S. equities, and oil have enjoyed a nice trend higher. The strangest thing here is the move higher in both the dollar and the stock market, as it suggests the market is caught by surprise due to the reflation trade that is not happening (i.e., higher stocks, lower dollar).