Global market sentiment remains fragile at the start of a new trading week, though the risk-off tr5ends have ebbed somehow. Investors continue to fear a sharp global growth slowdown after a slew of weak economic reports from major economies including China. As a reminder, the Chinese data last week showed that retail sales grew at the weakest pace since 2003. Over the weekend, the Bank of International Settlements warned that a normalization of monetary policy is likely to trigger a flurry of sharp sell-offs in the near future, which added to market concerns.
As such, German DAX 30 sheds 0.27% to 10,836, Italy’s FTSE MIB loses 0.33 per cent to 18,848, Britain’s FTSE 100 declines by 0.34 per cent to 6,821, while France’s CAC 40 slips by 0.48 per cent to 4,830. US stock index futures look somehow better, pointing to a mild recovery after a steep sell-off on Friday.
In forex markets, the dollar turned negative following a widespread rally on Friday. The USD demand diminished as the risk sentiment has improved a bit, but the main reason behind the current weakness is market concern over the upcoming Fed meeting which concludes on Wednesday. Traders fear of a more dovish tone from the Federal Reserve even as the monetary authorities are wildly expected to hike a rate for the fourth time this year. A shift in the central bank’s tone could not only drive the greenback lower but also support the risk-on sentiment globally.
The euro is licking wounds after a drop on Friday, with EURUSD still struggles to get back above 1.14, and the current recovery attempts are limited by the 1.1350 region. The local rebound in the single currency was capped by another weak euro zone report. In particular, the final November CPI came in lower than expected, which will further push back expectations for the first rate hike by the ECB next year. The FOMC meeting will set further tone for the euro, and in this context, the upside risks prevail.
The pound is stable, trading above 1.26 amid the speculations about a second Brexit referendum despite the UK Prime Minister May rejected the idea of running another referendum. The pair managed to get back above the 1.26 barrier amid dollar weakness but struggles to stage a more robust recovery. Despite the greenback has faced a potentially bearish risk from the upcoming Fed meeting, in a wider picture GBPUSD remains a sell on rallies due to heightened uncertainty surrounding Brexit. This week doesn’t bring any significant economic reports from the UK, and further divorce developments will continue to set the tone for sterling that will likely remain volatile.
USDJPY is grinding lower after a brief relief in Asia as the risk-off sentiment still prevails in the global financial markets. The pair so far holds above the 113.00 figure which is the key immediate support. A break below this level will make the short-term technical picture even worse. The downside risks prevail in the pair now as the buck could slip across the board should the Fed surprise to the downside.
Crude oil prices are making fresh recovery attempts. Brent clings to the $61 barrier again, with the bulls still lack the impetus to drive the barrel significantly higher. Traders are still worried over the potential slowing global demand amid the signs of weaker economic growth globally. But should the US shale activity continue to abate, the market could feel more comfortable unless new bearish economic signals shake the markets. A daily close above the mentioned barrier is needed for the short term technical outlook to improve.
Nathan Lambert, Head of Global FX Analytical Department