Mixed markets at the start of the trading month as the market looks at the Bank of England’s decision on Thursday and the Non-Farm Payrolls on Friday
The new trading month of May started with low volatility and tight ranges over the May Day bank holiday weekend. As such, market participants had nothing to do but observe slow price action and prepare for the key events in the week ahead – the Bank of England’s monetary policy decision and the Non-Farm Payrolls release in the US.
When volatility is low, the stock market usually outperforms. It happened yesterday, too, as the US stock market indices had a positive day – the S&P500 index trades above 4,150 points, and the Dow Jones sits comfortably above the 34,000 mark.
Yesterday, the dollar gave up some of its gains from the last trading day in April, but it is too early in the trading week to say if the reversal is here to stay or not. The EURUSD, AUDUSD, and GBPUSD, are still hovering around critical levels – 1.20, 0.80, respectively 1.40.
Commodities continue their bullish run as crude oil is seen back at critical resistance. Lumber and food prices are on the rise, too, as inflation fears have arguably caused a rise in prices.
The market participants position for the NFP on Friday, with the risk being that the data will exceed expectations.
Markets to Watch
Crude oil, GBPUSD, EURUSD – markets in focus today.
WTI Crude Oil Price
The price of oil is back above $64, in line with the general decline in the dollar seen in April. It is the second time crude oil has tested the $64 level — and the chances are that it will eventually break above. The rule of thumb says that if the market keeps testing a support or resistance level, it will break it eventually. A daily close above $65 signals more strength to come.
The week ahead is crucial for the GBPUSD pair, as the Bank of England is due to release its monetary policy statement. Rumours in the market suggest that the bank will reveal its intentions to taper the quantitative easing program now that the majority of the UK adult population is vaccinated against COVID-19 and lockdown measures are gradually lifted. The GBPUSD formed a triangle as a reversal pattern against the 1.40 level and looks vulnerable to more downside.
The EURUSD’s fight with the 1.20 level is not over yet. The pair broke lower from a rising wedge last Friday but found strong support ahead of the 1.20 mark. While it bounced on Monday, today’s London opening revealed that the bearish pressure still exists. A daily close below 1.20 is bearish ahead of the NFP on Friday.
Winners and Losers
Crude oil and commodity prices keep rising, while the dollar appears to have started the new trading month on a strong note, at least when compared to some of the G10 currencies.