Great week for US and European equity markets. What will the NFP day bring?

NFP day has arrived – what the markets have been waiting for all week. It was a typical NFP week so far, with ranges dominating the currency market, even though the US dollar traded with an offered tone during the last two days.

The EUR/USD pair’s price action had a positive day on Monday, followed by full retracement on Tuesday. It consolidated on Wednesday, only to bounce back to Monday’s highs a few hours before the NFP on Thursday. This kind of price action is very common during the NFP week.

Stocks react well to low volatility levels and ranges on the currency markets. As such, the Dow Jones posted a new all-time high yesterday, after breaking higher after a triangular pattern on the daily chart.

European stocks had a great week, too. The FTSE100 finally found the strength to push above the 7,000-point level, the Spanish IBEX rose above 9,000 points and the German DAX sits comfortably above the 15,000 mark.

Commodities extended their rally, with Gold breaking higher in the past twenty-four hours as it regained the $1,800/oz level. Fears of inflation in the United States have led to investors selling the dollar and preferring alternative investments. Corn, copper, lumber, food, and house prices are all moving in the same direction – upwards.

Weekly Analysis

Today it is all about the jobs data in the United States and Canada. Out of the two, the US jobs numbers will have the biggest impact on financial markets.

It is still early in the trading month, so today’s report is key for further developments in May.

The forecast is that the United States economy added around one million new jobs in April. Some estimates point to two million, but the average is more moderate.

Considering the strong economic recovery, the bias here is that the number will exceed expectations. In this case, stocks should remain bid. The big question is – what will the US dollar do? On better data, it should rise, but better data also fuels expectations of an overheating economy, which means higher inflation, thus a weaker dollar.

Finally, traders should keep an eye on revisions. As is often the case, revisions have the power to swing the balance on the dollar in one direction or the other, should they be significant.

Markets to Watch

S&P500, EUR/USD, AUD/USD – markets in focus today.

S&P500

This is a chart to remember – the S&P500 weekly chart shows that the market is getting ready to post its seventh consecutive green candlesticks. More precisely, in the previous six weeks, the market has kept pushing to new highs while retaining the higher lows series – the very definition of a bullish trend. The NFP is key for how this week’s candlestick closes.

EUR/USD

The EUR/USD bounced from the 1.20 level yesterday. It formed a triangular pattern that acted as a reversal, and since breaking higher it has traded with a bid tone. The 1.20 level continues to be a key thershold on any downside movement, and unless we see some weakness from the European front, the US developments will likely favor a lower dollar.

AUD/USD

The AUD/USD daily timeframe shows the lack of direction in the last days. During the last three weeks, the pair moved in a very tight range, remaining directly correlated with the US stock market on the upside.

However, while the Dow Jones managed to push to all-time highs, the AUD/USD pair did not follow. The 0.80 level remains crucial on any advance, while a move below 0.76 should trigger more weakness.

Winners and Losers

The US and European stock market indices have performed strongly this week, with some US indices like the Dow Jones pushing to all-time highs. The dollar remains offered on the back of fears of rising inflation, and therefore commodities have a green light for more upside.