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Markets consolidate on thin holiday volume, while we await guidance from the CB’s

The markets were quiet today as the news releases were few and far between. There was a pleasant surprise from German factory orders but even that came in under the previous month’s reading. The US and Canadian economies were on bank holiday today, so tomorrow should be a much more volatile market as these traders return from the long weekend.

Market Wrap

The US dollar has maintained its relative strength throughout the whole of the London session even though the US and Canadian markets have been on bank holiday today. Later this week we will receive much-needed guidance from the central banks on their monetary policy decisions. Until we have these key data points we’re likely to have small consolidation ranges or light continuation of trends.

This morning’s UK construction data was a miss which set the tone for the direction of the pound, with Euro Area sentiment and German factory orders coming in better than analysts had predicted giving the single currency a lift. In the HIS Markit /CIPS UK Construction data, new order growth showed a decline to a five-month low. The report went on to say that all three monitored segments record softer rises in inactivity, with the covid-19 creating the second-fastest rise in input prices due to severe supply chain disruption.

The good European data pushed the equities higher with the DAX closing 0.96% higher and back in the 15,900’s. All-time highs of 15,977 are within touching distance with the ECB meeting most likely to determine if we trade above there from this week onwards.

The EURUSD is tracking back towards the 1.1800 level, and I expect the price action to stay below the double top until this week's ECB meeting. If there is talk of extending or increasing the large asset purchase program through 2022 the euro could weaken but the consensus is split within the council, so I imagine the markets will want to turn the screws beyond this week and push the ECB into doing something quite drastic.

The retail trader sentiment has reduced their directional viewpoint and eased towards being more neutral on the ActivTrader sentiment indicator.

The GBPUSD is within a large descending corrective channel but is also tracking higher within a tight ascending range. This could continue for longer if the US dollar were to weaken significantly but I am also aware that ascending channels tend to break lower. Getting above the swing high formed at the end of July would make me feel very bullish about the pair.

The current ActivTrader sentiment indicator shows the traders are not biased either way hence why I feel we could float higher with momentum. The daily momentum indicator is pushing for higher prices currently with the indicator above the signal line.

Another market that melted up today was the S&P500 which rose on general good sentiment, continued momentum, and thin volume, meaning it was unlikely anyone had enough firepower to bring it down.


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