Price action took a turn yesterday as the US dollar flexed its muscles. After reaching 1.2080 in the London session, the EUR/USD turned south, triggering a similar move on other dollar pairs.

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Rumors in the market suggest that the EUR/USD declined on the back of a new poll indicating the Green Party in Germany did better than expected against Merkel’s Christian Democratic Union (CDU). However, since other dollar pairs such as AUD/USD and GBP/USD declined, we can probably attribute the move lower to a stronger dollar rather than a weaker euro.

The US equity market indices corrected yesterday, but not enough to deserve much of a mention. In Europe, things are rather calm on the stock market, in line with the lack of economic events so far in the trading week.

As for commodities, we’ve seen weakness in WTI Crude Oil and relative strength in gold. Oil was rejected from key horizontal resistance and dropped almost three dollars from yesterday’s highs, while gold remained relatively stable.

Daily Analysis

Judging by the economic events ahead of us, the trading week really starts today. From the UK’s Consumer Price Inflation to the Bank of Canada’s interest rate decision, there is a little something for everyone. Also, tomorrow is the ECB meeting and press conference, so euro traders will likely position accordingly.

Market participants expect the UK CPI to double from 0.4% to 0.8%. Due to the inflationary pressures seen throughout the developed world, the chances are that UK inflation will exceed expectations, and the British pound could rally on such news.

The Bank of Canada’s decision is a tough call as the central bank is likely to be the first one to taper its asset purchases. It is unclear how market participants will react, however. Tapering should be hawkish rather than dovish for the Canadian dollar (FXC), but the announcement may have just the opposite effect because the Canadian dollar outperformed its G10 peers during the pandemic.

Source: forexfactory.com

Markets to Watch

The FTSE 100, EUR/USD, and WTI Crude Oil markets are in focus today.

FTSE 100

The FTSE 100 has a hard time advancing after breaking higher from a triangle as a continuation pattern. However, it holds the series of higher highs and higher lows, and thus the bias for a move back to pre-crisis levels remains intact.

EUR/USD

The EUR/USD pair was rejected from dynamic resistance, and now the 1.20 level looms large ahead of the ECB decision tomorrow. The series of higher highs and higher lows is key in this case, too, but the pair should first break below 1.20. Ahead of the decision, the chances are that the EUR/USD will hold above the psychological level (FXE).

WTI Crude Oil

Crude oil met strong resistance at the apex of a previous triangle and dropped more than $3 from the highs. Just as the $1.20 level is pivotal for the EUR/USD pair, so the $60 level plays a similar role for the WTI crude oil price (BNO, OIL).

Winners and Losers

Oil is the loser and gold is the winner as the two commodities diverge (GLD).

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