European stock markets are bleeding on Monday against the backdrop of the persisting trade-war jitters and amid the rising pressure on Angela Merkel’s tenure as German Chancellor. China announced retaliatory tariffs on US goods worth $34 billion after Trump approved the first round of levies on $50 billion and prepared the second list of tariffs. Meanwhile, migrant issues have threatened Merkel’s coalition. As such, Britain’s FTSE 100 sheds 0.34 per cent to 7,607, France’s CAC 40 loses 1.24 per cent to 5,433, while German DAX 30 drops by 1.41 per cent to 12,827. US stock index futures are expected to drop significantly at the open amid trade-war concerns and the overall risk aversion.
The dollar has been mostly on the defensive today but the bearish pressure looks limited as the currency is partly supported due to safe haven demand and the remaining effect from last week’s FOMC hawkish tone. In the short-term, market participants will be expecting the comments by a number of Fed officials, and should their rhetoric be as bold as during the latest meeting, the greenback could rise against major rivals. The EURUSD pair continues its recovery from Thursday’s dip after the dovish ECB meeting, but the impetus remains limited and the price struggles to stage a more meaningful rebound above the 1.16 mark. The immediate intraday resistance comes just below the 1.1630 area where the Friday’s recovery stopped. As long as the single currency remains below the 20-DMA at 1.17, the bearish risks prevail.
GBPUSD trading has been muted today, with the pair is trading mostly in the red amid the pressure from Brexit woes. Theresa May’s Conservative party is split into two feuding camps, and both of them may topple the prime minister from power. Apart from political issues, the pound is under pressure ahead of this week’s bank of England meeting, which will give the currency a fresh direction down the road. Should the monetary authorities express a cautious tone on the interest rates, the bears will take the pair to lows below the 1.32 threshold.
After a decent ascent over the last week, USDJPY has been under some pressure on Monday. However, this is rather a sign of yen safe-haven demand than the dollar weakness for now. Besides, there are some overbought signals in the short-term charts after the recent rally in the greenback. The pair keeps above the 110.30 area but remains mainly in the lower part of its daily range, with the 111.00 level remains the key hurdle for bulls. As long as trade-war worries persist in the global markets, the USDJPY’s upside potential will likely remain limited. Tomorrow’s US construction data could give some support to the buck.
It’s going to be a big and volatile week in the oil market as the OPEC meeting in Vienna comes closer, making investors nervous. During the morning trading in Asia, Brent dipped to fresh two-month lows marginally above the $72 level, where the price has received support and staged a local recovery towards $74. The recent price spike came amid the reports that OPEC will discuss oil output hike of 300K to 600K bpd, which came as a relief for the market. However, a high degree of uncertainty around the potential size of increasing output remains, and the opinions are now ranging between 300K and 1.5 million bpd. So as the key issue remains undecided, we should expect quite aggressive price spikes in the next few days.
Spot gold makes failed recovery attempts following an aggressive dip towards new 2018 lows on Friday. The price reached a bottom around $1,275 and is attempting to cling to the $1,280 figure today, but the impetus looks too weak for now. Despite the yellow metal is deeply oversold, it may be too early to call a bottom as the greenback is powered by hawkish Fed and bullish economic fundamentals in the US. Should the dollar regain its strength after the current consolidation, we could see another sell off in gold. Only above the $1,300 area the downside pressure will somehow ease.
Nathan Lambert, Head of Global FX Analytical Department