After a quiet Monday, volatility returned in the markets this morning with European stock indices falling sharply, pulling lower with them US index futures. In FX markets, the dollar continued its upsurge while there was still no end in sight in the rout for emerging market currencies. Once again, gold failed to benefit from the stock market weakness, pressured by ongoing dollar rally. Other metals also fell, most notably silver. But at the time of writing, the major currency pairs and gold were bouncing off their lows. It remains to be seen, however, whether this will turn into a reversal later on in the afternoon session. North American market participants, who were out celebrating Labor Day on Monday, will return today. And with summer holidays over, we should expect to see more volatility from now on.
Plenty of macro events this week
As well as ongoing trade concerns and emerging markets, more volatility could be provided from this week’s upcoming macro events. We have already heard from the Reserve Bank of Australia overnight. As widely expected, the RBA held rates unchanged with Governor Low confirming that any rate move “still seems some way off,” but that the next move is likely to be up not down. This week’s other major central bank meeting is on Thursday when the Bank of Canada will have to decide whether to hike or hold interest rates unchanged. Analysts on the whole expect the BOC to remain on hold on this occasion, having just hiked rates at its previous meeting in July. What’s more, with the US and Canada failing to reach an agreement on NAFTA, it makes more sense that the central bank remains on a ‘wait and see’ mode. This week’s data releases have so far been unimpressive with UK’s manufacturing and construction PMIs both disappointing expectations. The US ISM manufacturing PMI will be published later on today ahead of Aussie GDP and UK Services PMI on Wednesday. The US ADP private sector payrolls and the ISM services PMI reports will be publish on Thursday, a day ahead of the monthly jobs reports from both the US and Canada on Friday.
Dollar Index at key resistance zone
Ahead of the upcoming events, the Dollar Index, as mentioned, has risen noticeably. But it is now bang in the middle of a potential resistance zone between 95.30 and 95.65. This area, as can be seen, was previously a sturdy resistance zone for DXY before its breakout in early August. However, the rounded retest of this area failed to offer support a couple of weeks later. As a result, the DXY broke down. Now back at this area, could the dollar find resistance? In the event it does turn lower from here then it is worth watching what happens around the 95.30 level, the high from last week when it formed a doji candle on the weekly chart. If price goes below 95.30 and hold below it then this would indicate that the bulls who bought the breakout above last week’s range are trapped. And things would turn decisively bearish in the short-term outlook, should the dollar break below Monday’s low at 95.00. However, if the DXY breaks above the abovementioned 95.65 resistance level then all bets are off for the bears. In this potential scenario, the DXY could head back towards the most recent high of around 97.00.
Source: eSignal and FOREX.com. Please note, this product is not available to US clients