Critical week for markets kicks off quietly

The dollar struggles to find demand at the start of the week amid the mixed market mood but the overall trading action remains relatively subdued as investors await this week’s high-impact macroeconomic data releases and events. IFO Business Climate Index and Expectations Index from Germany will be featured in the European economic docket on Monday ahead of the Chicago Fed’s National Activity Index and the Dallas Fed’s Manufacturing Survey.

Risk mood: China’s SSE Composite Index is up 0.45% but the Nikkei 225 Index is losing 0.65%. US Stock index futures are trading flat and major European equity indices remain on track to open near Friday’s closing levels. Meanwhile, the benchmark 10-year US Treasury bond yield, which fell 4% on Friday, is clinging to modest daily gains near 1.65%.

In an interview with CNN on Sunday, US House Speaker Nancy Pelosi said that Democrats have almost reached an agreement on a scaled-back version of US President Joe Biden’s spending bill. Pelosi further added that they are looking to vote on it later in the week.

EUR/USD stays afloat in the upper half of last week’s trading range around mid-1.1600s, supported by the modest USD weakness. The pair might need a fundamental catalyst to break out of this range.

Gold surged above $1,800 on Friday but erased a large portion of its gains before closing a little above $1,790. Currently, XAU/USD is closing in on $1,800 and it could gather bullish momentum in case US T-bond yields start to push lower.

The EU and the UK will continue talks on post-Brexit trade rules for Northern Ireland on Tuesday in London. The role of the European Court of Justice in upholding and implementing those rules remains the biggest sticking point. GBP/USD, which closed the last two days of the previous week modestly lower, is now edging higher toward 1.3800.

USD/JPY snapped a four-week winning streak and seems to have gone into a consolidation phase around mid-113.00s on Monday. The data from Japan showed that the Leading Economic Index declined to 101.3 in August from 104.1 in July but this reading was largely ignored by market participants.

Cryptocurrencies: Following Wednesday’s record-setting rally, Bitcoin extended its correction over the weekend and briefly declined below $60,000 before regaining its traction. Currently, BTC is up nearly 2% on a daily basis at $62,000. Ethereum continues to fluctuate above $4,000.

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