After a decent advance in Asian markets, European stocks extend gains on Monday, rising for a fifth day in a row as trade-war fears fade. Risky assets were buoyed by Friday US NFP jobs data. The US economy created more jobs than expected in June, while wages growth remained subdued, which assumes a gradual tightening path by the Fed. Meanwhile, British stocks were unfazed by the sudden resignation of Brexit Secretary David Davis. On fact, his departure raises chances for “softer” Brexit, as Davis was a proponent of a “harder” scenario. As such, Britain’s FTSE 100 gains 0.31 per cent to 7,641, France’s CAC 40 adds 0.23 per cent to 5,388, while German DAX 30 rises by just 0.05 per cent to 12,502. US stock index futures post solid gains ahead of the opening bell.
The greenback remains on the defensive across the board. The pressure has intensified on Friday, after a mixed jobs report. The market continues to expect two more Fed rate hikes this year, but the wages inflation data assume that further policy normalization in the US could be more gradual down the road, and this reduces USD’s attractiveness. The EURUSВ pair jumped to almost one-month high on Monday around 1.1790. The immediate upside target now comes at 1.18, and the bulls need some additional impetus to extend gains from the current levels. The pair will have a major test later this week as the US CPI data is due on Thursday. Should the numbers disappoint, the dollar downside correction within the uptrend – which remains intact so far – could intensify.
GBPUSD opened with a bullish gap Monday, with the price reached three-week highs at 1.3362 earlier in the day. The pound rally was powered by Davis resignation as the market now prices in a higher probability of a “softer” Brexit. Besides, expectations of a BoE rate hike in August continue to rise and exceeded 80% recently. These two factors, coupled with risk-on sentiment and weaker dollar, is a rather strong argument in favor of further recovery in GBPUSD from 7.5-month lows reached last month. However, any sign of dollar demand revival could reverse the ongoing recovery and prevent the pound from a rebound above the 1.34 barrier.
Brent crude has resumed its upside bias on Monday after two days of decline. Prices have come close to the $78 threshold and look set for further gains in the short term, though the market may need some additional impetus to extend the rise as the psychological mark is rather tough. Baker Hughes data showed that the number of oil rigs increased by 5 last week after two weeks of decline. However, the market shrugged off the report as traders have been focuses on the US foreign policy which is extending to the global oil market in the context of its tight sanctions on Iran. There is a high degree of uncertainty in the industry as it’s so far unclear, how much Trump’s policy, including a trade one, will affect the global trends in the oil market down the road. However, the overall picture now point to the prospects of rising prices in the longer term. Against this backdrop, buying dips looks appropriate.
Gold received a chance for a more pronounces recovery from 2018 lows amid dollar weakness. The yellow metal has resumed its corrective rebound after a mild retreat on Friday, with during the European session, the price has spiked above the $1,265 area for the first time since June 25. The technical outlook for the precious metal continues to improve, and there are more signs that the asset could have reached a bottom last week below the $1,238 figure. However, as the greenback so far remains within a bullish trend, the metal may look attractive for selling on rallies, which could derail the current recovery. Gold needs a daily close above the $1,261 level in order to proceed with the local ascent.
Nathan Lambert, Head of Global FX Analytical Department