European stock markets started the week on the upbeat note but slid into negative territory on Monday as investors express concerns over a second wave of coronavirus cases amid the continuing easing in restrictions imposed earlier. Market participants are worried that a second wave of outbreaks could undermine efforts to get economies back on track. Also on the negative side, U.S. Treasury Secretary Mnuchin warned that the unemployment rate stateside may have already reached 25%.
Against this backdrop, UK’s FTSE 100 sheds 0.18 percent to 5,925, Italy’s FTSE MIB loses 0.12 percent to 17,418. France’s CAC 40 declines by 1.30 percent to 4,490, while German DAX 30 loses 0.65 percent to 10,833. U.S. stock index futures drop along with European stocks following gains witnessed last week. On Friday, equities shrugged off the biggest one-month job losses in the US on record.
In currencies, the GBPUSD pair declined decently at the start of the week. The pair struggled to regain the 50-DMA and dipped to the 1.23 handle. If this level fails to act as support, fresh losses will be ahead. The risk-off environment adds to the negative pressure surrounding the sterling as dollar demand picked up. Also, there is still the possibility of a hard Brexit, so the market focus on this factor may weigh on the pound additionally. From the technical point of view, a dip below the 1.23 level will clear the way towards 1.2250, where the pair received support nearly three weeks ago.
USDJPY has been climbing for the third day in a row on Monday. The pair has accelerated the ascent and challenged the 20-DMA marginally above the 107.00 handle. A widespread dollar demand helped to overweigh the effect from risk aversion but as investor sentiment mat deteriorate further, the current upside momentum may wane at some point, suggesting profit-taking may bring the prices lower. A daily close above the mentioned moving average will signal the improvement of the near-term technical picture, however.
Meanwhile, oil prices have settled around the $30 psychological level, trading slightly negative on the daily charts. Brent crude was rejected from the levels above $31 late last week and has been struggling to regain the upside momentum since then. Despite a bounce from long-term lows, sentiment in the oil market remains depressed as concerns over the outlook for the global economy and energy demand persist. In the near term, the futures need to hold above the mentioned psychological handle, a break below which will reopen the way below $29.
Nathan Lambert, Head of Global FX Analytical Department