European equity markets are trading marginally higher on Monday despite the reports that the Chinese economy grew 6.2% in the second-quarter, at its slowest pace in 27 years. Still, the result was in line with market expectations, while retail sales and industrial production data came in higher than anticipated. Meanwhile, on the geopolitical front, Iranian leader Hassan Rouhani said that the country was ready to hold talks with the U.S., on the condition that Washington drops sanctions and returns to the 2015 nuclear deal. On the data front, Italy’s business outlook improved substantially in the four months to June, easing concerns over the state of the European economy. Stocks are also further supported by rising expectations of a rate cut by the Fed later this month.
Against this backdrop, the UK’s FTSE 100 adds 0.27 per cent to 7526, Italy’s FTSE MIB gains 0.14 per cent to 22,213, France’s CAC 40 rises by 0.04 percent to 5,575, while German DAX 30 gains 0.41 per cent to 12,375. US stock index futures point to a slightly higher open ahead of the corporate earnings season.
The dollar is mixed but mainly on the defensive as traders continue to price in further monetary policy easing by the Fed after a rate cut during the upcoming meeting in two weeks. EURUSD still struggles to get back above the 1.13 handle due to a lack of drivers at the slow start of the trading week. On Tuesday, the volatility may rise against the backdrop of US CPI data and Powell’s speech. Strong inflation numbers could partially ease the downside pressure on the greenback but will hardly make the Fed change its mind on rates. As such, the dollar will likely remain under a broader pressure but the downside potential from the current levels is limited as traders have already priced in a July rate cut. As long as the euro remains below the 1.13 barrier, the upside potential stays modest.
Oil prices continue t cling to the $67 level since last week. Despite the current upside bias, the market struggles for direction due to a number of contradictory factors. The storm Barry in the US Gulf of Mexico weakened to a tropical depression over the weekend, easing market concerns over the supply disruptions in the region. Meanwhile, a massive decline in the US crude oil inventories underpin the market. Still, the bulls refrain from aggressive actions after the OPEC and EIA reports showed that both organizations expect oversupply in the global markets in 2020. Technically, Brent needs to see a clear break above the $67 handle in order to challenge the 100-DMA around $67.40 and get out of the familiar trading range. On the downside, the immediate support comes around $66.35, where the 200-DMA lies.
Nathan Lambert, Head of Global FX Analytical Department