A moment to reflect on Presidents Day
- Mild USD retracement: USD is giving back some of last week’s gains. This is counter to recent moves across major forex.
- A technical rally on metals: Rebounds on gold and silver as commodities find support.
- Equities find support but US markets are closed: Wall Street is shut today for the US public holiday. With no direction from US futures European indices are slightly higher but lack intent.
With US markets shut, traders eye key events ahead
The US Presidents Day public holiday on Monday means that US equity and bond markets are shut.
Bond markets are incredibly important for major markets. They indicate the outlook for US interest rates. So when bond markets are shut, it gives USD traders less to go on, and often forex markets take a pause.
With liquidity reduced, markets tend to be quieter, with limited volatility. This is what we are seeing, to an extent, this morning.
Reaction to the data to come will be key
However, there are hints of mild USD direction. With last week’s rally pulling back into the close on Friday, there is a mild USD unwind today.
With limited direction from the US, this move is unlikely to find too much traction.
Instead, traders will be looking up the road towards key data this week. The USD rally is being questioned. The reaction to the data will likely determine if the USD rally is tired on has more legs to run again.
Flash PMIs and Fed minutes
US data has been consistently above expectations in recent weeks (Nonfarm Payrolls, Retail Sales, CPI & PPI). The sights will be trained on the flash PMIs on Tuesday. Will the USD continue to find buyers on upside surprises?
That and the FOMC minutes too. Fed speakers (Bullard and Mester) have been suggesting that a 50 basis points hike could be on the table in March. Upside surprises in the flash PMIs in addition to any hawkish lean in the FOMC minutes could fuel the USD higher once more.
Market moves suggest a pause in recent trends
There has been a mild pullback on recent trends:
- The USD strength on major forex pairs has pulled back
- Metals have found a degree of support, with gold and silver rebounding
However, for now, these moves look to be counter to the recent trends.
The USD rally is on pause
The recent USD rally has pulled EUR/USD lower. The move looked to be moving into a new phase on Friday, however, a “bull hammer” candlestick formation signals potential recovery near term.
- A failure to close under 1.0655 means that the downside move could be a failed break (potentially near-term positive).
- The price rebounded to leave 1.0612 as support near term.
However, this is counter to the correction that has been developing in recent weeks.
- The daily RSI is consistently under 50 and looks corrective.
- The price is trading under the 21 and 55-day moving averages.
Reaction to initial resistance at 1.0720/1.0745 will be an important gauge in the coming days.
Above 1.0804 would be bullish again.
Gold has been in a sharp correction in recent weeks. This has broken the medium-term recovery. Despite this, a technical rally set in on Friday to test this corrective outlook.
- Friday’s bull hammer candlestick is near-term positive - a close higher again today would confirm this rebound.
- A test of the historic pivot band $1860/$1875 will be important in the coming days.
- Above $1890 would turn the market bullish again
However, once more, this is counter to the corrective technical outlook that has been developing in recent weeks.
- The daily RSI is consistently under 50 – this points to a strategy of selling into strength.
- The price is below the 55-day moving average – an indication of a less positive medium-term outlook.
We will be watching the reaction to the rebound over the coming days. If the daily candles falter again, it is an indication that the market remains negatively configured to sell into strength.
Support and resistance levels for EUR/USD, Silver, and more
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