US dollar weakness reaches close to 2021 lows, as the EUR/USD pair traded above 1.2230. European inflation and FOMC Minutes in focus today.
Yesterday the US equity markets diverged from the US dollar’s weak trend. While the dollar declined, as seen by the EUR/USD trading above 1.2230 and the GBPUSD trading above 1.42 — the US equity indices corrected. Typically, a lower dollar triggers a move higher in the equity market, but this wasn’t the case yesterday.
The stock market has consolidated close to an all-time high, with only small corrections so far in the trading year. The Nasdaq 100 index closed yesterday with little change, whereas the S&P500 and Dow Jones were down by about 0.76%,
The US dollar’s bearish trend remains the dominant theme of the week. It has lost ground against all its peers, with no end in sight. Yesterday was a very bad day for the dollar, with most crosses moving more than two-sigma, as measured by the global FX overnight volatility.
Commodities, on the other hand, remain well bid. Gold has been trading steadily above $1,860, and Silver gained 0.69% on the day and is trading for $904. On the flip side, natural gas and oil closed lower yesterday by 3% and 1% respectively.
Today it is all about inflation in Europe and the FOMC Minutes in the US. While the Final and Core CPI data is forecast to rise at a constant pace, inflation in the UK is seen as accelerating. Any surprise to the upside should trigger higher volatility in the euro and British pound pairs, with the EUR/GBP cross is the most difficult to trade.
The FOMC Minutes should not bring anything new to the table. Still, three weeks ago, the Fed delivered a dovish message despite some wishing for tapering signals. Therefore, the dovish stance should dominate today’s minutes too, although the US dollar has declined against its peers since the start of April.
Markets to Watch
EURGBP, USDCAD, EURJPY – markets in focus today.
The EUR/GBP cross found strong resistance against the 0.87 level and now struggles to find energy for a new attempt higher. Given the EUR/USD’s strength, one should not be surprised if the cross overcomes resistance.
The USD/CAD did not break below 1.20, even though the pressure on the pair still exists. While in the bearish channel, the pair will keep finding dynamic resistance against the upper edge.
Despite a possible rising wedge, the EUR/JPY keeps forming higher highs. Only a move below 133 and 132.50 would spell trouble for the EUR/JPY bulls.
Winners and Losers
Gold keeps a steady tone, holding close to the weekly highs, while the US dollar is approaching its 2021 lows.