The Dow Jones triple top pattern hints at more weakness ahead, with the 35,000 area proving to be tough resistance for now.
Financial markets ended last week on a bearish note, as US equities corrected in the last few trading hours. The Dow Jones index dropped over three hundred points and rejected at 35,000 for the third time. Better than expected retail sales data was not enough to propel the stock market higher. While the equity markets jumped on the news, the move quickly faded.
European indices look flat at the opening today: the German Dax hovers above 15,500 and the UK FTSE 100 is just below 7,000.
This is a very important week for the euro. The common currency hovers around critical levels (1.18 for the EUR/USD and 130 for the EUR/JPY) while we wait for the European Central Bank (ECB) decision.
Oil is down about 1% at the start of the trading week, finding support (for now) at around $70. Gold is hovering above $1,800, and as long as they both hold above support, the bias remains bullish for commodities.
The economic calendar tells us everything about the day ahead. The chances are that we will see tight ranges because no relevant economic data is due. Hence, once again, the US equity markets are in the driving seat.
Markets to Watch
The Dow Jones, EUR/USD, and EUR/JPY markets are in focus today.
The Dow Jones outlook suddenly turned bearish last Friday after the index failed at 35,000 for the third time in a row. It appears that a triple top pattern formed— a reversal pattern suggesting more weakness ahead. A drop below the 34,200 level will further put pressure on US equities, and the move lower will likely trigger strength in EUR/AUD, inversely correlated with the stock market.
As already mentioned, this is an important trading week for the euro. The EUR/USD holds above 1.1780 but fails to bounce above the bearish trendline. Every bounce is just another lower high, and the price action suggests that a new leg lower is imminent. At the moment, the pair hovers around 1.18, as it has for the past few trading days. The range may extend until the ECB meeting later in the trading week.
The EUR/JPY cross dropped from 134 to the round 130 level and found support in what looks like the right shoulder of an inverse head and shoulder formation. A daily close below 129 means that the neckline is broken, and the bearish pressure will intensify as traders push toward the measured move in the 126 area.
Winners and Losers
US equities are off their highs, triggering a move higher in the US dollar.