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Market Recap

The new week started with a surprising divergence in the market – the U.S. dollar and the U.S. equity markets diverged, as the dollar fell while equities gained. Such “anomalies” are normal during the NFP week when the market takes a lot of time to consolidate before the all-important jobs report next Friday.

Silver stole the attention of the commodities markets. It gapped at the opening on Monday and 8% or so higher on the day, albeit giving most of half of those gains back again. Gold did not follow through, as it consolidates in what appears to be a head and shoulders pattern.

The Dax index in Germany is unable to decouple from the U.S. stock indices despite troubled German economy and grim perspectives regarding vaccination in Europe. Speaking of vaccination, in France, yesterday, were administered less than 5,000 vaccines in the whole country. If we compare it to the United States, which runs at a speed of 1.25 million vaccines a day, the economic gap between the two parts of the world will soon weigh on the markets.

Daily Analysis

No relevant economic events are scheduled today in the London and the North American sessions. Only in the upcoming Asian session, the New Zealand Dollar (NZD) traders will want to keep an eye on the employment data. Other than that, expect a classic consolidation as often seen during the NFP week.

Markets to Watch

Today’s focus remains on the precious metals market due to little or no economic news to impact currencies.

Silver

As mentioned earlier, silver gapped higher at the week’s opening but wasn’t able to hold onto its gains. In fact, it formed a reversal pattern – a head and shoulders that appears to have broken lower. The pattern’s measured move is calculated as projecting the distance from the highs to the neckline, from the neckline. By doing so, it looks like silver still has some distance to travel to confirm the reversal pattern.

Gold

The price of gold is key to the price action in silver. The gold/silver ratio, for instance, is one that guided traders for decades, indicating that gold usually leads silver. As such, more important for the price of silver is what gold does here – is this a bearish flag or the right shoulder in a head and shoulders pattern visible on a bigger timeframe? In both cases, a break and close below the support triggers a leg lower to new lows when compared to the ones in December 2020.

USDJPY

The third market to pay attention today is the USDJPY pair. When no one was looking, the pair regained the 105 level, after breaking higher from a bullish flag late last week. The poll of the flag still projects a move into the mid 105-106, but traders should avoid being trapped on the long side if the market breaks the series of higher lows and higher highs that typically forms during bullish trends.

Winners and Losers

So far in the trading week the U.S. equity markets are the biggest winners. The Dow Jones index, for example, trades above 30,400 points after closing last week below 30,000. This triggered a renewed risk-on appetite, but with some currency pairs not following suit (e.g., EURUSD trades below 1.21).

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