Commodity Prices Diverge As Gold And Oil Move In Opposite Directions

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.

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Disclaimer: None of the content in this article should be viewed as investment advice or a recommendation to buy or sell. Past performance/statistics may not necessarily reflect future ...

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