European stock market is trading marginally lower on Monday, with political developments in Italy remain in focus. Over the weekend, the antiestablishment 5 Star Movement and hard-right League party reached a deal to form a governing coalition. Despite the country managed to break the impasse, investors remain cautious and refrain from optimism amid the lingering doubts in the success of the coalition down the road as the political instability may remain. As such, FTSE 100 losses 0.19 per cent to 7,709, France’s CAC 40 sheds 0.23 per cent to 5,529, while German’s DAX 30 sheds 0.37 per cent to 12,953. Meanwhile, Wall Street futures point to gains at the open. The overall geopolitical concerns have eased further ahead of the upcoming second round of US-China trade talks due tomorrow.
The greenback remains on the defensive since last Thursday, when the US data showed the April CPI came at lower-than-expected levels. The buck had to take a pause after the recent rally, and the bearish correction continues at the start of a new trading week. The overall upside trend in USD is still intact, but may be challenged if tomorrow’s retail sales data disappoint. At this stage, the dollar needs some additional impetus to resume the ascent, otherwise the current correction will deepen. Therefore, this week, the greenback will be eagerly waiting for “hawkish” cues from the Fed members, as well as for the bullish economic fundamentals.The EURUSD pair is trading marginally below the key 1.20 mark. A break above is needed to confirm the corrective recovery from 2018 lows reached last week around 1.1820. Despite the third day of gains, the euro’s positions still look vulnerable as the single currency itself doesn’t have any significant bullish drivers for the time being, and its rebound is fuelled mainly by dollar’s local retreat. So, as soon as the USD demand reemerges, the pair may resume the down move. In order to escape this scenario, the price needs to regain the 200-DMA at 1.2020, which is the immediate upside target for euro bulls.
GBPUSD has jumped above the 20-DMA on Monday and trying to retest the 1.36 mark which is key in the short term. The current correction will develop if tomorrow’s UK labor market data doesn’t bring another disappointment to the market. Traders will focus on wages data as an inflation indicator. Should the numbers come at the stronger side, the pound will go to the next stage of its recovery as positive numbers will fuel expectations over the August rate hike by the Bank of England. So far, the odds of this scenario are about just 40%. In the bigger picture, GBPUSD remains vulnerable as long as it trades below the 20- and 100-DMAs at 1.3770 and 1.3890 respectively.
USDJPY has resumed its upside move Monday, but looks uncertain as the overall bullish sentiment around the dollar has abated. The pair is trading marginally above the 14-DMA at 109.40 and keeps above the psychological level 109.00 which is an important support level in the short-term. The Japanese yen demand is rather subdued due to easing geopolitical concerns, so the dollar refrained from a more pronounced correction and is now trying to resume the rally. USD traders will take further clues from tomorrow’s US retail sales data as the numbers will help traders to assess the chances for three more rate hikes this year.
Brent is marginally green after some corrective attempts. The recent local optimism in the crude oil market was fuelled by OPEC which raised its global oil demand outlook by 25,000 barrels per day for 2018. However, the cartel has also raised its estimate of oil supplies from non-members, citing the US production which continues to surge. Technically, Brent looks set for further rise, and the shallow corrections attracting buyers confirm this. But at this stage, the price may first retreat before the bulls are back in the game at more attractive levels. The initial support comes at $77. A daily close above this level will cement the bullish sentiment in the market.
Spot gold is trying to rebound due to dollar’s weakness. The price challenged the $1,320 mark but is yet to overcome this level to confirm a local recovery. The overall picture shows the yellow metal is still vulnerable to losses as the dollar’s bullish channel remains intact so far. However, there is a chance that the greenback will intensify its correction, should the US retail sales report misses estimates.