European stocks opened mostly lower on Monday, as investors digested the threat of the US-China trade war escalation after Trump threatened by additional tariffs and China reiterated that it will respond if US takes any new steps on trade. China’s trade surplus with the US, which widened to a record in August, added market concerns as well. However, the risk sentiment has improved since, with Italian stocks lead the way higher again as the Italian government said it will stick to EU rules in the next year’s budget. As such, Italy’s FTSE MIB rallies by 2.28 per cent to 20,916, Britain’s FTSE 100 loses just 0.04 per sent to 7,273, France’s CAC 40 adds 0.61 per cent to 5,284, while German DAX 30 rises by 0.45 per cent to 12,013. US stock index futures set for an open higher amid hopes for a new round of tax cuts.
After some consolidation, the greenback has turned strongly lower against the euro and pound as the effect from spectacular US labor market data has abated. The single currency jumped from three-week low of 1.1526 and is attempting to get back above the 1.16 threshold. The pair received support amid the easing concerns over Italy’s budget and the general improvement in the risk sentiment, which pushed the greenback lower. However, the threat of another wave of risk selling is rather high, so the current gains in EURUSD could be unsustainable.
As for the GBPUSD pair, the price jumped north in a knee-jerk reaction to EU Barnier’s comment that getting a Brexit deal in 6-8 weeks is realistic. Traders took this highlight as a step towards some progress in negotiations, and should the risk of a no-deal “divorce” continue to ease, cable could 1.31 down the road, though at this stage we could see a correctional retreat after an emotional rally to over one-month highs in the 1.3050 area. A daily close above 1.30 is needed to confirm a bullish breakthrough. The key event for the pound this week is the Bank of England meeting due on Thursday, while EUR traders will focus on the ECB meeting.
USDJPY is trending modestly higher for a second day in a row but still below the 50-DMA which comes around 111.23 and serves at the immediate resistance. A slight bullish bias is due to a better risk sentiment, but it remains too fragile to expect further substantial dollar recovery as the yen demand will prevail as long as the US-China trade war persists and the EM currency crisis remains in focus. For a more sustainable ascent, the pair needs to firmly get back above the 111.90 area.
Brent crude continues its corrective rebound after a rather aggressive profit taking that took place marginally below the key $80 level. The price has regained the $77 figure and even briefly jumped to $77.90, but failed to sustain gains as traders so far refrain from more active buying and prefer to make cautious steps north amid the reemerging risk-on sentiment. The trade war fears and emerging market concerns are capping the upside potential in the oil market, while the continuing decline in the US shale activity and the expectations of Iranian sanctions give some support to Brent. From the technical point of view, the barrel needs first to confirm its bullish bias by a daily close above the $77.50 region. Otherwise, the price could easily get back below $77, especially if the sentiment in the global markets turns worse once again.
Nathan Lambert, Head of Global FX Analytical Department