European stocks started higher on Monday but the rally failed to last, and major indices have quickly reversed gains as risk sentiment deteriorated. As for the regional news, the Bank of Spain warned that the domestic economy could shrink by as much as 12.4% this year while Germany’s VDMA said nearly 90% of companies in the engineering sector were hit by virus impact this month. Meanwhile, BOE's Broadbent noted that the coronavirus crisis is quite unlike a normal cyclical downturn. German chancellor Merkel said there are no current plans for a new easing of lockdown measures.
Against this backdrop, UK’s FTSE 100 sheds 0.82 percent to 5,739, Italy’s FTSE MIB declines by 0.82 percent to 16,914. France’s CAC 40 loses 0.76 percent to 4,464, while German DAX 30 sheds 0.53 percent to 10,569. U.S. stock index futures are losing ground as well. With the Dow futures shedding nearly 400 points despite democratic leaders and Treasury Secretary Steven Mnuchin said they were close to striking a deal to replenish a roughly $350 billion small-business recovery program.
Meanwhile, major currency pairs remain stuck within tight ranges amid a lack of catalysts at the start of the week. EURUSD turned flat after a bounce from 1.0840 has abated around the 1.09 handle that continues to act as the immediate resistance. In a wider picture, the pair stays bearish as long as the prices remain below the 200-DMA that arrives at 1.1050.
The euro’s recovery momentum has waned after risk sentiment deteriorated while Germany’s Bundesbank said in its monthly report that the country’s economy is expected to stay in a severe recession this year and highlighted that the recovery was unlikely to be quick and robust, which added to the negative pressure surrounding the common currency. Comments from the Bank of Spain also helped to cap the recovery attempts in the EURUSD pair. Should dollar demand persist in the near term, the prices may threaten the 1.0840 area and even dip to lows around 1.08.
In other markets, gold prices trimmed earlier losses and it looks like the precious metal is ready to turn green on the day as the risk-on tone has waned across the global stock markets. The bullion derived support in the $1,670 area and turned flat in the daily charts. If the recovery momentum persists, gold may regain the $1,700 figure and climb back to the recent multi-year highs after the current profit-taking. An important and fairly strong resistance arrives at $1,711 while on the downside, the immediate support now comes around $1,670.
Nathan Lambert, Head of Global FX Analytical Department