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Market Recap

The trading week ahead is full of economic events capable of moving the markets. In fact, we already see some interesting moves as the U.S. dollar appears to break higher.

Two central banks are due to release their interest rate decision this week –  the Reserve Bank of Australia (RBA) and the Bank of England (BOE) – but the focus remains on the dollar as the NFP report on Friday is decisive. Last month the U.S. economy lost jobs, and if we see a reversal, the dollar may gain some more on positive economic data.

U.S. stocks remain close to the highs as the earnings season started with companies in the tech sector beating expectations. While close to all-time highs, buying the dip seems to be the name of the game.

In Europe, the scandal with the vaccine deliveries seems to have eased a bit. AstraZeneca announced an increase in deliveries, and so did Pfizer/BioNTech. However, the time lost (about a month) in the vaccination race weighs on the economic recovery.

Silver is on everybody’s lips these days. The WallStreetBets, a subreddit group that trades in unison, appears to be engaged in buying and holding silver. Silver is viewed by many as one of the most shorted markets, and thus a possible short squeeze there is on the radar.

Daily Analysis

The NFP week is a special week because of the market typically moving in tight ranges. Therefore, the price action on Monday is usually influenced by traders already positioning for the NFP report at the end of the week.

In the early European hours, we’ve seen a strong manufacturing PMI in Switzerland (59.4), the Euro area (54.8), and the United Kingdom (54.1). Later in the trading day, the ISM Manufacturing in the United States is forecast to reach 60 – any positive surprise there should trigger another leg higher in the USD.

Markets to Watch

EURUSD, USDCHF, and GBPCHF are at key levels today – the EURUSD struggled so far to stay below 1.21, the USDCHF broke out of an inverse head and shoulders and the GBPCHF broke out of an ascending triangle.

EURUSD

The EURUSD pair found strong support at the 1.21 level as buyers stepped in on any attempt to move lower. Today’s price action is key because a close below 1.21 implies that the market aims at the measured move of a head and shoulders pattern close to 1.15.

USDCHF

The USDCHF broke higher on the back of stronger than expected manufacturing PMI data. This is one of the most shorted currency pairs, and the reversal here has huge implications on the FX dashboard. Judging by the inverted head and shoulders formation, the market still has a long way to go until reaching the measured move.

GBPCHF

The cross formed an ascending triangle that broke higher last Friday. A continuation pattern, it points to 1.2350 and beyond as such triangles appear during strong bullish trends.

Winners and Losers

The Euro looks weak today. All eyes are on the EURUSD as it currently trades below 1.2080, and the move lower is surprising because the overall positioning is on the short side of the dollar. The consensus is that 2021 will bring a lower dollar and everyone talks about how much the dollar will depreciate. Therefore, the breakout below 1.21 could easily extend as most traders are positioned on the long side.

On the other hand, the dollar’s strength is not seen in other markets, as Bitcoin is up 3%, Nasdaq 100 futures 1.14%, and so is the S&P 500. If the EURUSD closes below 1.21 today, it will likely be because of the Euro weakness and not the USD strength.

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