European stock market is trading higher on Monday as progress towards a trade deal between the US and China fuels risky assets demand across the globe. China reported that it could lower tariffs on US farm, auto and chemical products, while Washington may roll back a good proportion of the recent tariff increases. A final deal should be ready for the Trump-XI Jinping summit at the end of March. The economic data from euro zone added to the positive investor sentiment as consumer confidence index rebounded in March to -2.2 from -3.7 in the previous month. Meanwhile, producer prices rose by 0.4% m/m and 3.0% y/y, both higher than expected.
Against this backdrop, Britain’s FTSE 100 adds 0.45 per cent to 7,138, France’s CAC 40 is up 0.50% to 5,291, while German DAX 30 rises by 0.07 per cent to 11,610. US stock index futures are trading higher before the opening bell on the back of renewed hopes in trade talks between the US and China.
The greenback continues to grind higher against the European currencies, while the rally against the Japanese yen has stalled on Monday. EURUSD stays depressed despite better-than-expected economic reports from the euro area. Traders continue to fear a more pronounces slowdown in the regional economy, refraining from buying the common currency even as the risk-on tone prevails and caps the dollar’s upside impetus. In part, investors cautious tone is due to fears over the Italian economy that slipped into a recession late last year. Should tomorrow’s GDP report show another contraction in the struggling economy, the selling pressure on the euro could intensify. Technically, the pair needs to hold above the 1.13 support in order to avoid a more aggressive profit taking, while above the 100-DMA marginally below 1.14, the short-term technical outlook will improve.
USDJPY reached a fresh 2019 high above 112.00 on Friday and stays close to the psychological mark since then. The pair is trading flat on Monday as the risk-on sentiment is not strong enough to fuel another rally from the current levels. The longer the dollar remains below the immediate upside barrier, the higher the chances of a partial profit-taking in case of waning investor optimism over the US-China trade deal. The area of 100- and 200-DMAs around 111.30 is the key for bulls as a break below could open the way to a deeper correction.
Brent crude resumed the ascent at the start of a new trading week, after a massive sell-off on Friday. The prices regained the $65 figure mainly due to a widespread optimism over the trade deal. Additionally, the market is supported by Baker Hughes data that showed the number of oil rigs in the US contracted by 10 over the last week, to the lowest level since May 2018. Further dynamics on Brent will depend on the ability of global investors to keep the positive tone as the market is very sensitive to any changes in the sentiment recently because of the lingering concerns over global growth.
Nathan Lambert, Head of Global FX Analytical Department