European stocks entered the fourth quarter on a positive footing, as well as the global shares generally, due to investor optimism on the trade front after a new US-Mexico-Canada agreement to update the existing NAFTA. Despite this, the market optimism remains cautious on the back of the Italy’s budget issue as well as remaining uncertainty over the Brexit negotiations. As such, Britain’s FTSE 100 adds 0.09 per cent to 7,517, France’s CAC 40 gains 0.20 per cent to 5,504, while German DAX 30 rises by 0.44 per cent as well, to 12,300. US stock index futures on the rise as investors cheer the news of a new trade deal to replace NAFTA.
The dollar remains on the offensive on Monday, with European currencies are back under pressure following some failed recovery attempts earlier in the day. The euro continues to lose its attractiveness amid the ingoing budget issues in Italy. The European Commission is reported to reject Italy's budget plans in November and open a procedure against the country's public accounts. Besides, the higher-than-expected deficit could trigger a rating downgrade by Moody's and Fitch later this month. Moreover, Italy’s Salvini said Genoa decree could increase deficit further, which is no good for the country’s budget and for the single currency itself. In this context, the euro remains vulnerable to further losses, especially as the buck is getting support from a “hawkish” Fed. As such, EURUSD could challenge the 1.1570 area in the near term and threaten the 1.15 figure this week.
USDJPY is trading around the 114.00 figure, close to nearly one-year highs reached marginally above the psychological level. The risk-on sentiment after the news on the US-Canada-Mexico deal has further derailed the yen demand, in addition to increasing dollar attractiveness on the back of the prospects for further tightening by the Fed and solid economic data. The pair has accelerated the ascent after last week’s FOMC meeting due to a widening monetary policy divergence as the Bank of Japan still has to follow the tightening path due to a stubbornly low inflation. Locally, the yen was further weighted by today’s dismal Tankan manufacturing and non-manufacturing data for the second quarter of 2018. Technically, the pair looks set to break the 114.00 figure in the short term, though the risk of profit-taking is increasing as well due to come overbought conditions.
Brent crude stuck around the $83 figure on Monday. The market is still supported by the upcoming US sanctions on Iranian oil exports and reached fresh four-year highs around $83.40 on Friday. However, at this point, it looks like traders still need some additional or fresh impetus to push the price even higher. Besides, the positive USD sentiment partially caps the upside potential in commodity markets. Brent needs a daily close above the $83 threshold to continue the ascent in the short term. Otherwise, a bearish correction could take place, though the potential selling pressure should be limited as the fundamentals still point to further rise in prices.
Gold price is back under pressure after a brief recovery on Friday. The yellow metal failed to regain the key $1,200 level last week and resumed the retreat amid the general dollar strength. The price is back below $1,190 figure and could still challenge the $1,180 threshold should the dollar bulls remain on the offensive. The upcoming fed officials’ statements could bring additional impetus to the buck, while the key event this week is the NFP employment report, including wages. Strong figures may fuel another buying wave in the dollar and sent the precious metal lower from the current levels.
Nathan Lambert, Head of Global FX Analytical Department