Financial markets recovered the initial losses seen in the first days of the trading week and risk-on dominates. US equities are close to their record highs.
The trading week started with a slide in the crude oil price triggered by the OPEC+ deal regarding the supply level in the market. The move quickly sent financial markets down, as risk-off sentiment dominated.
As such, the Japanese yen and the US dollar, viewed as safe-haven currencies, appreciated at the start of the trading week. In some cases, the US dollar gained more, such as against the Australian dollar, because the risk-off move generated a decline in US equities, too.
Euro held its levels, being bought on dips ahead of the much-awaited ECB press conference. The 1.18 level was pivotal for the EUR/USD, just as 130 was for the EUR/JPY.
Equities made a round trip – declining sharply in the first half of the week, and recovering most or all of the lost ground in the second half. The European indices followed the US equity leads and bounced sharply from their lows.
Ahead of the last trading day of the week, European indices look bid. Today is the PMIs day in Europe, and so the European indices may experience higher volatility than usual. In the US, the futures point to a green opening, with the main indices testing their record highs.
In other words, the initial risk-off situation at the start of the trading week turned into risk-on toward the last day of the week. The bias is that the bullish sentiment continues due to no relevant economic events ahead.
During the first days of the week, when the stock market indices declined and the US dollar gained ground, gold remained stable above $1,800. It appears that it had found a pivotal level, and, while above, the bias remains bullish.
WTI crude oil price currently trades above $71, a sharp increase from its weekly low. This is the asset responsible for the financial markets’ gyrations this week, so a close look at oil prices is mandatory for identifying future trends.
PMIs from Europe and the United States are released today. The market expects solid growth for the manufacturing and services sector on both sides of the ocean. Out of all the PMI releases, the Flash Services PMI in the United States has the potential to move markets the most. Because the US is the largest economy in the world and a service-based one, deviations from the expected number may move the equity market and the US dollar.
Markets to Watch
Gold, EUR/USD, and USD/JPY are the markets in focus today.
Gold price remains bid while above $1,800, but the price action resembles a head and shoulders formation. Unless the market moves above $1,820, the highest point in the right shoulder, a move below the neckline spells troubles for gold price. Should the neckline give way, the measured move points to a quick decline into the $1,760 area.
Despite a possible falling wedge formation on the daily timeframe, the EUR/USD pair moved in a tight range this week. While unable to hold above 1.18, it kept finding buyers into the 1.1750 area. Therefore, the two levels are key moving forward.
While below the upper edge of the pattern, the bias remains bearish. A clear break below 1.1750 and a weekly close below the level sends a bearish signal for the week ahead.
The USD/JPY pair managed to recover from the weekly lows and now forms a possible pennant formation. This is a bullish, continuation pattern, and the measured move hints at another attempt at the highs.
On its way up, the market broke the bearish trendline and now threatens to invalidate the downtrend by moving above the most recent lower high. If successful, there is no resistance ahead of 111.50.
Winners and Losers
USD/JPY recovered all of the losses seen earlier in the trading week and kept increasing. EUR/USD remains weak, while the gold price is stable at around $1,800.