DAX outlook is still bullish while above 15,200 points. The German index keeps the higher lows series intact after a ranging trading week.
European equity markets opened higher on the last trading day of the week. The German DAX recovered from yesterday’s lows and is up 0.65%, holding its bullish bias.
In the United Kingdom, the poor economic data released this morning failed to impress the FTSE 100. The index is up 0.32%, although the construction output, industrial production and manufacturing production missed expectations.
The story of the trading week comes from the commodity markets. Namely, the WTI crude oil price finally corrected from its highs. After trading close to the $77 mark, the price of oil found support below $71, triggering some weakness on commodity currencies, such as the Canadian dollar. The price of oil and the Canadian dollar have a direct correlation, often more important for the dollar than the Canadian economic data.
Gold made it back above $1,800. The move higher came in the context of falling US 10-year yields after the FOMC minutes last Wednesday. The yields and the price of gold have an inverse correlation, and so gold found an ally in the falling yields/rising bond prices.
Silver moved in a tight correlation the entire week, unable to break resistance above $27. At present, it is down half a percentage point, trading at $25.83.
In the United States, the equity market had a mixed week. Monday saw no trading because of the bank holiday, and Tuesday’s trading activity was shaped by the FOMC minutes to be disclosed the following day. The sentiment in the market was that the Fed would use the occasion to announce the tapering of its asset purchases. It ultimately did not, so share action was driven by the commodity markets and US 10-year yield performance.
The US dollar was strong against the Canadian dollar but lost ground against the Japanese yen and remained flat against the euro.
The UK data released earlier this morning was weak on all accounts. The manufacturing and industrial productions missed expectations, as did the monthly GDP and construction output. However, this is second-tier data with little or no impact on the British pound or the stock market.
The European Central Bank (ECB) presented its first strategy review in thirteen years this week. It announced a type of soft average inflation targeting, which was important enough to send the EUR/USD higher by about one hundred pips.
Both the Bank of England’s Governor and the ECB President are scheduled to speak today in Venice, Italy at the Global Forum on Productivity. The G20 meetings start over the weekend in the same city.
Finally, Canadian dollar traders will be looking to the employment data due out later in the North American session. Market expectations are that the economy added 172.5k new jobs last month, and any deviation from the consensus will trigger sharp moves in the Canadian dollar.
Markets to Watch
DAX, USD/JPY, USD/CAD– markets in focus today.
The 4-hour chart reveals the ranging conditions in place in the last weeks. This week was no different for the DAX – rejected at 15,800, supported at 15,300. The DAX outlook remains bullish while above 15,200 because the series of higher lows, typical in bullish trends, is intact. A move above 15,800 would trigger more strength, while a drop below 15,200 is viewed as bearish.
This week, the USD/JPY broke the rising channel that started in April. This is bearish development for at least two reasons. First, the market pushed below the dynamic support given by the lower edge of the channel. Second, the price action broke the higher lows. Moving forward, 110.50 should act as resistance and represents a level that must hold if we are to see further Japanese yen strength.
The USD/CAD pair made a double bottom at the 1.20 area in May and has trended higher ever since. It recovered close to six hundred pips since bottoming, and this week’s drop in the price of oil surely helped. 1.2650 looms large for bulls, as it acted as strong resistance in the past. Canadian employment data is key for today’s price action.
Winners and Losers
The Canadian dollar declined together with the WTI crude oil price, while the Japanese yen recovered some of the ground lost in the previous months.