The trading week was dominated by central banks’ interest rate decisions and statements, and the true price action started only on Wednesday. Until then, the Retail Sales in the United States showed a decline for the month of February, although the loss was offset by January sales being revised higher.
On Wednesday, the Fed did the impossible and suggested more easing on a growing economy with higher inflation expectations. The market reacted as the Fed intended, the yields on the long-term debt dropped, the dollar declined, and stocks made a new all-time high. However, one day later, the party ended, as U.S. yields shot higher right at the start of the London session. As a consequence, everything reversed.
The best example of the confusion in the markets comes from the EURUSD exchange rate. Last week on Thursday, the pair rose from 1.19 close to 1.20 at the ECB meeting and press conference. By the time the Fed was due this week, the pair had erased the entire move.
Wednesday, during and after the Fed press conference, the EURUSD pulled the same trick – it rose from 1.19 close to 1.20, only to fully retract the next day. Hence, we may say that, from the EURUSD point of view, the last week or so meant only consolidation around the 1.19 level. Other currency pairs moved similarly, with the AUD pairs a bit more volatile due to the RBA’s recent actions and the volatility in the U.S. stock market.
Speaking of equities, the current period is crucial to see if the bullish trend ends or not. A big part of the recent fiscal stimulus will end up in the stock market, and if we still see a decline, it means that outflows exceed inflows.
The Bank of England and the Bank of Japan turned out to be non-events for the markets. However, the price action on the commodity markets turned out to be interesting.
Crude oil had a tough day yesterday. Toward the end of the North American session, it dropped a whopping 7.9%, triggering a move higher in the CAD pairs and a general risk-off sentiment. Somehow, gold and silver held their levels.
European equities had a great week so far, with the Dax in Germany closing above 14,700, a new record. FTSE100 and IBEX in Spain outperformed too.
The last trading day of the week turns out to be more interesting than initially thought. If we judge by the economic calendar, only CAD traders have something to look after today. Yet, the move lower in the price of oil from yesterday may mean more for CAD traders than the Retail Sales indicator. Also, it is time to see if the long-term yields continue their rise, as if they do, the dollar may gain more ground.
Markets to Watch
Silver, crude oil, USdJPY – markets in focus today.
Silver and gold pared the weakness seen in crude oil yesterday, but the technical picture does not look constructive. For instance, the price of silver hovers in a rising channel that resembles a bearish flag with a measured move that would confirm the head and shoulder pattern formed at the start of the trading year.
Crude oil was the main actor yesterday. It dropped over 7% on the back of fears of a strong dollar and rising yields in the United States. Also, concerns about the outcome of the future OPEC meeting reminding everyone that crude oil can also drop, not only rise. Fact is, it broke the bullish channel, and now it met support at the $60 round number.
One of the most interesting setups is on the USDJPY. The Bank of Japan today signals its willingness to keep the yield curve control measures in place. However, it widened the bands and also said that it would buy risky assets from this moment on only if needed. The statement sounds a bit hawkish, and the USDJPY has more room to correct as it looks stretched by all measures.
Winners and Losers
Crude oil is the main loser of the week if we judge only by yesterday’s massive drop. The dollar remains steady against rivals, and may emerge as the winner in the remaining hours of the trading week.