Eventful day in the markets drawing to a close

After an eventful day in the markets, US stocks are higher, but off their best levels; gold is also up while crude oil has given up its earlier gains. In FX, the US dollar is mostly weaker but not as much as the euro, while the British pound is up slightly and the Canadian dollar is significantly higher.

The day started off with a bang for the pound as the latest UK wages and jobs data came in higher than expected, helping to alleviate some concerns that economic growth was losing momentum. Then we had the Bank of Canada rate decision and it didn’t disappoint. The BoC raised interest rates by 25 basis points and delivered a statement which was decisively hawkish. The central bank raised Canada’s growth outlook and said weakness in inflation was transitory. The Canadian dollar surged and it was still printing new highs on the day at the time of this writing. The North American currency ignored the volatility in crude oil prices. Oil prices had been higher after the American Petroleum Institute (API) had reported a sharp 8.1 million barrel decline in US crude stocks.  Although the official inventories report from the Energy Information Administration (EIA) also showed a similar sharp drop, the 7.6 million barrel drawdown was lower than the API estimate. Thus, crude prices eased off their highs before turning lower on the day. However oil prices were paring their losses at the time of this writing. Meanwhile the US stock markets rallied while the dollar fell against most major currencies (except euro) after the Fed Chair Janet Yellen sounded a little more dovish than expected at her testimony on the Semi-annual Monetary Policy Report before the House Financial Services Committee, in Washington DC. Among other things, Yellen said that “considerable uncertainty always attends the economic outlook. There is, for example, uncertainty about when — and how much — inflation will respond to tightening resource utilization.”

Looking forward to the remainder of the week, there isn’t a lot on the agenda except on Friday when we will have the latest CPI and retail sales figures from the US. These have the potential to move the dollar sharply. If the dollar is going to make a comeback, perhaps its best bet may be against the EUR/USD, for this pair has failed to sustain its breakout above the old resistance level of 1.1440. If the fibre closes the day around its current levels, or worse below the 1.1365-80 support area then we may see a correction of some sort in the coming days. For now, though, no major support level has broken down and so any short-term bearish price action should be taken with a pinch of salt. Still, the EUR/USD’s underperformance cannot be ignored, not on a day when the US dollar also fell sharply.