Markets will be slow during the start of the week as we wait for US inflation news later this week. The moves seen last week could be unwound and a reversion to the mean is likely. My biggest conviction is trading halfway back on any impulsive weekly candle from last week, like the one printed in the EURUSD.
ECB President Lagarde told the European Parliament Economic and Monetary Affairs Committee that European inflation will be above the target at the end of 2022 but below where it is now. The EURUSD has found resistance at the 1.14500 level and is trading within a 60-pip range after the big move following the comments from Christine Lagarde last week during the ECB press conference.
The forex heatmap has stayed in a risk-on mode all day with the euro being the weakest currency relative to the others that we follow. The Aussie and Canadian have also remained the strongest throughout the London session. The US dollar has also remained relatively weak today.
US treasuries and the greenback had been trading relatively similar pre-2021. But now they plunge lower continuously as we get closer to the March FOMC meeting and the rate hike cycle gets nearer.
The pound has over the last few weeks found support at the 1.3400 price level which had a confluence of support from the moving averages and from a 61.8% Fibonacci retracement. The Bank of England has raced ahead of the ECB and the Fed with a back-to-back rate hike, taking their bank rate to 0.50%. If the Fed goes ahead with a 50bps rate hike in March they will jump ahead of the BoE with a bank rate around 0.75%. Presidents Lagarde’s comments around European inflation were less hurried, as she said there was ‘no need to rush to premature conclusions.
Brent crude took out the prior high from Friday and is in a technical bull trend. Last week’s inventories report from the US was a 1million barrel draw which stopped a back-to-back weekly rising trend in US inventories. The Belarussian President said that his forces who are conducting military exercises with Russian forces could be directed against the Ukraine and NATO if necessary, as the UK sends a small number of extra troops to Poland. If there is an all-out war we will obviously have more to worry about but the price of oil is likely to go higher.
There had been disruptions in oil production within Libya but their oil minister over the weekend said the Libyan oil export terminals were open once again. Another reason why oil may have stalled at its highs today was news from Russia’s Lukoil who said they had raised output to 81.14mln tonnes in 2021 and from US Secretary of State Blinken, who announced that the US is looking to shore up Natural Gas supplies into Europe.
The traders on the ActivTrader platform are looking at the price of oil and basically decided that the top must be in as they are extremely long the US dollar versus the Canadian dollar. I agree that the greenback is likely to catch a bid over the next few weeks but the higher inflation and tight energy markets, along with geopolitics will surely suppress the US dollar versus the Canadian dollar.