The Dow Jones index made a V-shape recovery from the weekly lows and could now move back above record highs. The technical picture looks bullish as the market pushes against resistance.
Today is European Central Bank (ECB) day, and the euro is unchanged on the week. It dropped at the start of the trading week against the US dollar and the Japanese yen, following the drop in the equity markets.
However, equities have pulled back strongly and threaten to break to new all-time highs, as evidenced by the Dow Jones index. In the absence of other relevant economic data, the bullish sentiment in the stock market fueled a risk-on movement in other markets too: the EUR/USD and the EUR/JPY pairs recovered their levels from the start of the week.
European equities followed the US equity market lead and posted impressive gains yesterday. Most notably, the FTSE 100 index claimed back the pivotal 7,000 level.
Equally important is the $70 level for the crude oil price. One of the reasons for the risk-off sentiment at the start of the trading week was the drop in the crude oil price. Now that the price of oil is above $70 again, sentiment has improved.
Precious metals are unchanged. Gold trades close to the $1,800 level, for example, unable to make any significant move.
Most of the price action in the euro pairs this week was influenced by expectations about the outcome of today’s ECB meeting.
Rumours in the market hinted at some interesting facts, such as the ECB disagreeing on the stimulus guidance draft. If this is the case, market participants might be taken by surprise by the new guidance, and volatility in the euro pairs will likely increase. No other relevant economic data is due today.
Markets to Watch
The Dow Jones, EUR/USD, and NZD/USD markets are in focus today.
The Dow Jones appears to have formed a continuation pattern. A move above horizontal resistance will open the gates to more strength, as suggested by a possible irregular triangle formation. As long as the market remains above the rising trendline, the Dow Jones outlook remains constructive.
A massive bullish divergence with the RSI has formed on the EUR/USD 4-hour timeframe ahead of the ECB decision later today. Also, the price action resembles a falling wedge pattern, signaling a possible reversal. Traders may want to keep an eye on two levels: 1.20 to the upside and 1.17 to the downside. A move beyond each of the two levels may be the start of a significant trend in the months ahead.
A similar pattern has formed on the NZD/USD pair. The recent bounce coincides with the stock market recovery, and it shows how the risk-on environment influences the currency market too. A move above 0.70 is bullish for the NZD/USD pair, as it means that the price has broken out of a falling wedge pattern.
Winners and Losers
The Dow Jones and other US equity markets have outperformed while the US dollar has given back its weekly gains.