For the entire month, stocks were bid at the lows, and the dollar sold on every bounce. In other words, we may say that the markets continued in February from where January left, with some market moves reaching interesting lengths.
The last trading week of the month was poor in terms of economic releases. The most expected events of the week were the two testimonies delivered by the Fed’s Chair, Jerome Powell, on Tuesday, respectively Wednesday.
His words were enough to send the Dow Jones to new all-time highs and to lift the equities from the lows on both days. However, as is often the case during the ending part of the month, flows generate high liquidity, and the price action takes many by surprise.
Equities in the United States followed a similar path as the dollar. We may say that this is a true risk-on environment where the dollar declines, equities spike, and USDJPY rises too. Yesterday’s move lower, however, may signal profit-taking ahead of the month-end.
In Europe, both the Euro and the GBP continued their March higher. The EURUSD exchange rate bottomed just before the February NFP below 1.20 and did not look back all month, triggering stops after stops. The move higher in the GBPUSD pair was even more spectacular. Cable erased most of the loss after the Brexit referendum and traded close to 1.42 in February, in a relentless rise. As for the European equity indices, the buoyant price action seen in the United States did not trigger a similar reaction.
Crude oil is the star of the month among commodities. Yesterday it traded above $63 after it started the month at $51. The move higher, over 20% in a month, is enough to scare anyone worried about inflation, knowing the impact of higher oil on the day-to-day prices.
After the Non-Farm Payrolls (NFP) released in February, the risk-on environment dominated financial markets. Up until yesterday, there was little or no profit-taking, with markets continuing to squeeze, albeit at different paces.
The economic calendar for the trading month was poor in terms of important releases. Whenever that is the case, the equity markets’ price action leads the other markets.
One thing to note for the month of February – the U.K. data came in better than expected all month. Also, inflation and inflation expectations climbed spectacularly. Finally, and perhaps the most important thing, the U.S. Treasury yields started to rise, despite the Fed continuing its asset purchasing program.
Markets to Watch
Today’s focus is on the silver price, the S&P500 index, and the GBPUSD.
Silver reacted to the recent strength in the dollar by declining from the projected neckline of a head and shoulders pattern. Should the market have the strength to break below the neckline, the projected measured move points to $22 and more.
The U.S. equity indices suffered yesterday one of the major declines recently. The S&P 500 broke dynamic support, but somehow it keeps holding a bit of a bullish bias. Bears may want to see further downside, which may be absolutely possible considering the rise in the U.S. Treasury yields and the market participants that pull funds out of stocks to invest in bonds. If the risk-on move transforms into a risk-off, the S&P 500 has more room to correct.
Despite yesterday’s decline back below 1.40, the GBPUSD pair is one of the best performers of the month. With only one trading session left in the month, the focus today is to see if the move higher in the dollar is temporary or what we have seen so far is only profit-taking ahead of March. In any case, investors bought the British pound on every dip so far, as suggested by the rising trend that started in late September last year and is still valid. Currently, the GBPUSD pair is at dynamic support, and while it remains inside the rising channel, the bullish bias persists.
Winners and Losers
The dollar is the main loser in February, as the dollar index dropped through the 90 support level. Even if it recovers today, the move lower remains the dominant theme for the month. On the winners side, the British pound gained ground against literally any other major currency