European stock markets are trading with modest gains on Friday amid some mixed corporate updates. The overall sentiment is supported by Asian investors’ optimism and the weaker euro. Meanwhile, the news of Nestle and its alliance with Starbucks lifted the shares, while financials are under pressure following the weak results from Societe Generale and BNP. On the negative side, there is also a 13% drop in Air France amid management turmoil. FTSE 100 is closed for a bank holiday. France’s CAC 40 adds 0.09 per cent to 5,521, while German’s DAX 30 is up 0.85 per cent to 12,928. Meanwhile, Wall Street futures point to higher open due to rising energy stocks, though investors remain alert amid the remaining geopolitical risks.
The greenback continues its ascent on Monday, with the USD index refreshed 2018 highs recently. Traders continue to open longs in the buck which remains undervalued following last year’s losses. EURUSD dropped to fresh end-2017 lows below the 1.19 threshold and tries to regain the psychological mark in order to avoid further pain. The eurozone economic numbers continue to disappoint the euro bulls, with the investor sentiment index fell further in May instead of the expected recovery above the 20 mark. Additionally, the single currency feels the pressure from the monetary policy divergence, as the ECB will likely opt to keep a more cautious approach towards normalizing, while the Fed may bring four rate hikes back on the table. As the pair has dented the 1.19 mark, the risks of further decline increase in the short term.
The GBPUSD feels a bit more stable, resisting the pressure from the dollar bulls. The price holds above the 1.35 level after a decline to early-2018 lows around 1.3485 on Friday. The key event for the pound this week is the Bank of England meeting. Following a series of disappointing economic releases and some dovish signals from the central bank, markets reassessed their expectations and don’t already hope that the regulator will hike this week. Therefore, should the BoE bring a hawkish surprise, the pound will jump severely. But the chances for such a scenario are very low. From the technical point of view, the pair needs to confirm its rebound above 1.35 and stage a daily closing around 1.36.
USDJPY resumed the ascent after a two-day slide to the 14-DMA below 109.00. Despite the prevailing risk-on environment and the overall dollar demand, the pair struggles to stage a more pronounced recovery. In order to confirm the bullish bias, the pound needs to regain the 109.50 region in the short term. The potential for another jump north remains, but it looks limited as long as the greenback oscillates below this local resistance, a break of which will open the way to retesting the 110.00 barrier.
Brent jumped quickly to fresh end-2014 highs just below the $76 level and retreated partially, keeping intraday gains and its upside bias. Traders continue to price in now sanctions against the Iranian oil exports as Trump is to take decision on the nuclear deal by this Saturday. Against this backdrop, the market has shrugged off another disappointing Baker Hughes report which revealed that the number of rig counts increased for a fifth week in a row, to the highest since May 2015. This week, the market will likely fell further support from the “Iranian factor”, but the higher the barrels lifts, the more the risk of a correction becomes. Should Brent fail to break above the $76 resistance in the nearest future, profit taking may come and send the price to the 20-DMA marginally above $73.
Spot gold is dented by stronger dollar after two days of gains. The US NFP employment report was rather inconsistent on Friday, but it didn’t prevent the buck from further increase as the market is starting to believe again that the Federal Reserve policy makers will hike four times this year instead of three. As long as traders price in this scenario, gold will remain vulnerable to further losses. On the other hand, any signs of the USD bearish correction may fuel quite aggressive demand for the yellow metal in the short-term trades. The nearest support is now in the $1,310 region.
Nathan Lambert, Head of Global FX Analytical Departament