The trading week behind was characterized by a strong U.S. dollar across the board and somehow weak equities in the United States. The term “somehow” refers to the fact that yesterday the main indices had a remarkable comeback, erasing most of the losses.
For instance, the Dow Jones index traded close to the 32,000 level at some point during yesterday’s price action but then bounced over seven hundred points to over 32,700. In other words, investors rushed in, once again, to buy the dip in the U.S. equity market. Similar price action was seen on the other main U.S. indices, but with little or no impact on the American dollar.
The Australian dollar, on the other hand, traded with a weak tone so far this week. The same is valid for the EUR and the GBP, as the greenback spoils the reflation trade seen obvious at the end of the last year.
In Europe, the main indices celebrated the sharp comeback seen in the U.S. markets and opened sharply higher today. For instance, the German Dax is up close to 1%, the Spanish index IBEX is up 1.31%, and the FTSE100 is up half of a percentage point too.
Crude oil sits at the $60 level as the world watches how one single ship is responsible for disrupting the global oil supply chain. News that one ship the size of the Empire State building has blocked the Suez canal sent the crude oil price higher from the $58 level. For global trade, this is terrible news as the daily estimated loss for the canal being closed is huge.
Gold remained above $1,720 for the whole week, consolidating for the next move. It does trade with a bid tone here and trades already thinking that this is some sort of an accumulation zone for a bigger breakout.
The rest of the trading week is pretty light, as the economic calendar shows. The biggest risk is that the E.U. Summit will produce some statements regarding vaccine export restrictions as the pandemic ravages the old continent.
Personal income and spending in the United States will help traders get an idea about what consumers did in the last month. As such, the data’s interpretation in relation to the savings rate may offer a clearer picture as to what the retail sales number will show next.
Markets to Watch
Dax, EURGBP, gold – markets in focus today.
The German Dax index made a U-turn yesterday with the strong comeback in the U.S. equities and broke higher from a bullish flag formation. The flag’s measured move points to a target a thousand points or so higher, revealing investors’ confidence in the German economy and Europe’s ability to come back from the pandemic.
Investors should consider something else here that helps to fuel the rise in the Dax index. That is the weak euro.
A weak currency bodes well for the stock market, so the more the euro drops, the faster the Dax should rise. Any positive outcome out of the E.U. Summit should also bode well for the Dax index.
The EURGBP’s bounce in the last few days was short-lived, as investors sent the pair back to major support ahead of the end of the trading week. The cross pair formed a descending triangle, and the recent move higher pierced the upper edge of it – a normal price action in such a triangle. Its measured move points to 0.83 and below, and the weakness will probably come on the back of a stronger pound rather than a weak euro.
Gold consolidated for the entire week and looks ready for a breakout. At a first look, the price action appears to be constructive or bullish, but this triangle may break either way.
However, considering the falling wedge pattern completed previously, the bias is that the gold price will break higher. Bulls may want to wait for the price to close above the upper trendline before chasing it to the 50% retracement level or even to the 61.8% and beyond.
Winners and Losers
The American dollar is the de facto winner this week so far, while the euro is the main loser.