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Market Update
A sense of calm has returned to financial markets on Tuesday as the recent retail trading frenzy shows signs of subsiding as the price of silver retreats and the heavily traded stock, GameStop, is under notable downside pressure.
The US dollar index is also gaining ground against a basket of top currencies on Tuesday, although the FED put still remains very much in place and continues to slow the pace of intraday appreciation in the greenback.
FX
Aside from the US dollar index, perhaps the big story of the day in the foreign exchange market is the move lower in the EURUSD. The euro fell to a two-month low against the US dollar today, touching 1.2020 during the European session. The break below the 1.2060 level is seen as technically important and could lead to further downside.
From a technical perspective, a large head and shoulders pattern has been developing over recent weeks on the EURUSD and EURGBP pairs, which have been flagging a potential down move. The next hard support level is 1.2010, below this level and the downside really starts to open-up for the EURUSD.
Obviously, a big factor is the US dollar index. The greenback has pretty much made ground against every major currency so far today except the Canadian dollar. If bulls can keep up the pressure, then an inverted head and shoulders pattern look set to be activated on the US dollar index chart.
Please keep in mind that US dollar index has been trapped in a period of major price consolidation over recent weeks and could explode higher if the mentioned pattern is ignited. All eyes of neckline resistance, at 91.25, on the DXY.
Commodities
A lot of price movement has already taken place in the commodity sector so far today. The two big stories are obviously the move lower in silver, and the big move higher in the WTI oil and also Brent oil.
Touching on silver first. The shiny metal has continued to weaken intraday and fallen towards the $27.00 handle. Reports suggest that a major factor in the decline in the value of silver is the CME exchange raising margin requirements.
However, this is not quite the full story. Reports also suggest that the push higher was not entirely done by retail speculators and could indeed be some very clever misinformation to force the price of silver higher by other market actors. The plot thickens.
Gold and silver are both notably lower today also. Both metals look vulnerable to further declines at this stage, especially since gold was unable to crack the technically important $1,870 resistance barrier yesterday.
WTI and Brent oil are both trading at multi-month highs today’s as traders and investors continue to bet on vaccine led recovery, which will help the global economy return to normal.
WTI faces huge resistance at $58.00 and $60.00, while Brent faces stiff resistance from February 2020 swing-high, at $59.95. Watch out for the coming OPEC meetings scheduled this week.
Indices
The FTSE100 is gradually rising and testing towards its 50-day moving average at the time of writing. The gains posted by UK miners on Monday is notably absent after the recent pullback in metals this morning.
Elsewhere in Europe it is the same story for the German DAX and the ITA40, as they continue to build on Monday’s blockbuster gains. The ESP35 and the CAC40 are the notable outperformers amongst European indices today.
Across the pond, the S&P500, Nasdaq, and Dow Jones Industrial Average are higher intraday as fears about retail traders taking on the hedge fund community are pushed to one side. Earnings season is also in full swing this week, so plenty of volatility is expected in the big three US index’s over the coming days.
