The European stocks are trading lower on Monday, extending last week’s losses. Further negative dynamics partly reflects the persistent worries about a global trade war. Investors also refrain from buying shares ahead of the upcoming Fed meeting and the EU Summit this week. The Britain’s FTSE 100 is under the additional bearish pressure, losing 1.25% on the day, to 7,074.68 amid an aggressive plunge in Micro Focus shares (down almost 55%) after its CEO Chris Hsu resignation and warning on the earning outlook. Another bearish driver for the index is the pound’s rally to fresh March highs around 1.41 on the reports the EU and Britain have reached a political agreement on the terms of a post-Brexit transition deal. Meanwhile, Germany’s DAX 30 shed 0.60% to 12,315.41 and French CAC 40 lost 0.49% to 5,257.00.
Following the earlier rise, the dollar is retreating against the European currencies while appreciating against the yen which turned negative after a fresh attempt to push the greenback lower below the 106.00 mark. Despite the continuing risk aversion, the recent positive Brexit developments gave some relief to global investors. The additional pressure on the currency came from a drop in Japan PM’s approval ratings over the land sale scandal, which increases uncertainty around the political future in the country. Despite the current rebound above the 106.00 threshold, the USDJPY pair is still exposed to bearishness as the greenback remains under a threat on the back of Trump’s aggressive policy. In the short term, however, the dollar may gain support from the Fed meeting on Wednesday, should the regulator hike rates and signal further tightening this year. The immediate resistance is now at 106.40.
The EURUSD pair turned positive on the day following a brief dip to fresh two-week lows around 1.2257. The euro still facing local resistance at 1.2320 where the 20-DMA lies. A sustained break above is needed to confirm the recovery following a three-day retreat. The main driver for euro buying was the renewed offered bias around the greenback. Should the dollar index crawl back below the 90.00 mark, the bullish pressure around the single currency will intensify. However, the upside momentum for the pair will likely remain limited, as traders continue to adjust positions ahead of the US central bank meeting, expecting a more “hawkish” tone from the new governor Powell. EURUSD need a daily close above the 1.23 level to hold its short-term gains.
GBPUSD gas rallied aggressively on the back of agreement on the term of a transition deal. The pair jumped to fresh monthly highs at 1.3987 amid short-covering. Despite the impressive ascent, the pound is yet to confirm the bullish break. The short-term outlook will improve, should the price test the next local resistance at 1.4000-1.4030. Considering the Irish border issue remains unresolved, the downside risks for the British currency remain. A catalyst for the bulls may come from the Bank of England meeting later this week, if the monetary authorities provide some clues as to their future policy in general and the potential hike in May in particular.
Brent crude oil prices back to square one following a morning’s dip to the region $65.55. The current mood in the market looks neutral, and the short term outlook will get better only after a sustained recovery above the $66 level. The immediate risk for the recovery attempts is the renewed dollar buying ahead of the Fed meeting. Besides, fresh US inventory and production data may point to another growth in volumes as the drilling activity continued to surge last week – the number of oil rigs reached 800, according to Baker Hughes report. Should the risks materialize in the coming days, Brent will likely return to lows around the $64 mark.
Gold prices are extending the bearish move for the fourth day in a row. The yellow metal touched a fresh two-week low during the Asian trading at $1.307.74 and since then has attracted some buyers. But bears remain in control as long as prices remain below the $1.323.50 level. In the short-term, gold needs to regain the $1.320 threshold in order to turn neutral. The asset will continue to rely on USD’s behavior this week. Should the Fed provide the market with hawkish signals, the greenback will appreciate across the board, which is the key risk for the precious metal for now. A daily close above the $1,310 will partially ease the immediate downside pressure on spot gold.
Nathan Lambert, Head of Global FX Analytical Departament