Earnings, BOE, RBA and NFP are the center of the market this week
In the first week of February, all eyes turn to a range of central bank news announcements with the Bank of England Monetary Policy Statement on Thursday and the Reserve Bank of Australia Rate Statement in the early hours of Tuesday. With both currencies moving higher in recent months, markets could be sensitive to any changes in the banks’ outlook.
On Friday, traders will be focused on US Non-Farm Payroll and Unemployment figures. While the US dollar was one of the weakest currencies over the past few months it has staged an impressive rally higher over the past week or so. Optimism around US economic data could help lift the dollar even further.
Both Europe and US earnings season kicks off in high gear this week with a range of corporate releases from the likes of Exxon, Pfizer, BP, Alibaba, Amazon, Google, Shell and many others. With the market ending last month on high volatility, even bigger moves could be ahead.
You can learn more about some of the global themes affecting the markets in this selection of education articles:
- Chinese Stock Market - Investing in Chinese Stocks
- The 11 Sectors of the Stock Market You Need to Know!
- Understanding the Difference Between Common Stock vs Preferred Stock
Weekly Forex Calendar
Source: MetaTrader 5 trading platform provided by Admiral Markets
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Trader’s Radar - US Employment
Currently, the moves in the Forex market are being driven by a short-squeeze on the US dollar. The currency which has been trending lower for the past several months has staged an impressive rally back higher. While it is still too early to call it an uptrend, the move higher could gain traction if economic data supports it.
That’s why Friday’s 1.30 pm GMT US Non-Farm Payroll, Unemployment Rate and Average Hourly Earnings report is so important. The Non-Farm Payroll report shows the change in the number of people that were employed in the previous month, excluding workers in the farming industry.
In last month’s report, it showed that 140,000 jobs were lost in the economy. On Friday’s 5 Feb report, the market is expecting 85,000 jobs to be added to the economy with the same unemployment rate at 6.7%.
Source: Admiral Markets MetaTrader 5, USDX, Monthly - Data range: from Dec 1, 2005, to Jan 29, 2021. Performed on Jan 29, 2021, at 7:00 pm GMT. Please note: Past performance is not a reliable indicator of future results.
The US Dollar Index is an index of the US dollar against a basket of different currencies. In the long-term monthly chart shown above, it shows the dollar being held in a long-term trading range between horizontal resistance and horizontal support, shown by the two horizontal black lines.
Recent price action shows that the market has come to the bottom of the range and has rejected the horizontal support level. As this is a monthly chart, the price may not run away to the upside and could range first before moving higher.
However, it is an interesting position right now which could dictate the trend of the dollar for the next few months. This has huge ramifications for the direction of the other majors such as EURUSD, GBPUSD, AUDUSD and others.
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Corporate trading updates and stock indices
Stock market indices ended last month with some extreme volatility, largely thanks to a group of retail traders short-squeezing hedge funds out of their positions. The group of day traders on the Reddit forum banded together to purchase out of the money call options on the most heavily shorted stocks by hedge funds.
This led to brokers having to buy the stock to cover their clients’ positions, while the hedge funds also bought the stock to get out of their short positions to minimise losses. The flurry of activity led to some stocks like Gamestop surging more than +1,000% higher in January alone. The group also targeted Beyond Meat, Nokia and others.
This led to some significant liquidations in stock markets with the S&P 500 dropping below its 20-day exponential moving average and breaking below its 4-hour trend line. The price even retested the trend line for another drop to the downside, as shown below.
Source: Admiral Markets MetaTrader 5, SP500, H4 - Data range: from Oct 29, 2020, to Jan 29, 2021, performed on Jan 29, 2021, at 10:30 am GMT. Please note: Past performance is not a reliable indicator of future results.
Past five-year performance of the S&P 500 circa: 2020 = +16.17%, 2019 = +29.09%, 2018 = -5.96%, 2017 = +19.08%, 2016 = +8.80%, 2015 = -0.82%.
If sellers are to take control of the market in this higher timeframe uptrend correction, traders will want to see some lower low and lower high cycles to confirm the building of short positions.
However, as the long-term trends are still up, medium to higher timeframe traders will be looking for signs the 4-hour chart price action is basing through double bottom patterns and higher lows as a confirmation of a move back up.
All eyes will also be on a range of European and US earnings announcements this week. Some of these include:
- Tuesday 2 February - Exxon Mobil, Pfizer, BP, Alibaba, Amazon, Google
- Wednesday 3 February - GlaxoSmithKline, Ebay, Qualcomm
- Thursday 4 February - Snap, PayPal, Ford, Unilever, Yum, Shell
- Friday 5 February - Sanofi
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