Following a healthy rise in Asia, European shares continue to build growth momentum on Monday, with global investors feel more confident after a strong US jobs numbers at the end of last week. The report, which alleviated concerns over a more aggressive Fed tightening, added to risk demand that came back to the markets after Trump’s less tough than expected stance on trade tariffs. The optimism was also fuelled by the reports that Trump could meet with Kim Jong Un by the end of May, while the two Koreas plan to hold a summit by end April. However, the US-North Korea negotiations are not guaranteed yet, and the threat of a trade war hasn’t disappeared, so investors remain alert for now. Germany’s DAX adds 0.51% to 12.410,15, French CAC 40 is trading 0.13% higher on the day, at 5.281,49, and Britain’s FTSE loses 0.22% to 7.208,43. The American index futures point to a higher opening for Wall Street.
The currency markets show subdued trading on Monday amid lack of news and drivers. The EURUSD pair is flirting with the psychological support at 1.23 despite the greenback is mainly on the back foot. The US dollar failed to benefit from the Friday’s jobs report, and the bulls remain on the sidelines today as the market is nervous ahead of tomorrow’s US CPI numbers. Should the results exceed expectations, EURUSD could dip firmly below the 1.2270-1.2260 area. Another risk event for the single currency is the Draghi’s statement on Wednesday. A cautious and more “dovish” tone from the ECB Governor will inevitably add to the bearish pressure and open the way to the 1.22 threshold.
Following some consolidation during the morning trading, the GBPUSD pair resumed its upside momentum and is now within striking distance of the 20-DMA around the 1.39 level. The pound is now rising above the 50% of the move down from the February 26th high at 1.3890. However, the bullish potential remains limited in the short term as the market will likely be cautious ahead of tomorrow’s spring budget statement by the chancellor Philip Hammond. Despite the British currency shows resilience ahead of this risk event, it is mostly due to US dollar relative weakness, though the pound’s positions obviously look more robust that the euro’s ones. Should Hammond disappoint the market, the pair will lose its short-term bullish bias and turn negative below 1.38.
USDJPY meanwhile can’t benefit from the risk-on environment and trading a bit lower on the day, despite world investors don’t show safe haven demand. The yen has got a boost from local buyers who buсked the global trend and rushed to the safe Japanese currency amid a political scandal around the sale of a state-owned land for a very low price involving Prime Minister Abe. However, this factor won’t be in play long, especially ahead of tomorrow’s US CPI data which will set the tone for the greenback across the board. Besides, as long as the global stocks remain in the positive mood, the bearish potential for the USDJPY is limited. To alleviate the short-term downside pressure, the pair needs to regain the 107.00 mark. Crude oil prices move lower on Monday as the traders optimism over the decline in the US drilling activity has faded. Baker Hughes reported on Friday that the number of active oil rigs in the country declined for the first time in seven weeks. However, it was not enough for extending the rally, and Brent futures failed to climb back above the $66 level. The price slipped below $65 and is trying to stabilize around this psychological level. Despite the risk-on mode across the markets, investors remain cautious regarding a potential trade war, which keeps oil bulls in control. In the short-term, the commodities will continue to monitor the global risk attitude as well as the US dollar’s dynamics. The next risk event for the market is the API’s report on US oil inventories on Tuesday.
Gold resumed the downside move at the start of a new trading week, with spot prices are again making for the Friday lows below $1,313. The world shares have shrugged of the threat of a global trade war for now, which is pressuring the yellow metal as a safe haven asset. The jobs report has also added optimism over the health of the US economy, which is limiting the downside pressure on the greenback and adds to the bearishness for gold. On the other hand, as long as the USD index fails to stage a substantial recovery, the lows around the $1.312 mark will likely remain intact.
Nathan Lambert, Head of Global FX Analytical Departament