European markets are heading north on Monday, with an easing in US-China trade tensions fuelled widespread demand for risky assets, including stocks. The two countries which were on the verge of a trade war until recently, signaled some positive steps towards a peaceful agreement. By the way, Trump stated today that fair trade with China will happen, while Treasury Secretary Steven Mnuchin pointed at a meaningful progress made in latest trade talks. As such, Britain’s FTSE 100 is up 0.66 per cent to 7,830, France’s CAC 40 adds 0.51 per cent to 5,642, while German markets are on holiday today. Meanwhile, Wall Street is poised to rally, with Dow Jones futures up over 200 points already amid the optimism over the US-China trade relations.
The greenback continues to rally across the board, with the Japanese currency is the weakest among the majors, which reflects the risk-friendly environment. Additionally, the US Treasury yields remain at mid-2011 highs, and this hurts the yen further. USDJPY broke above the 111.00 threshold and reached four-month highs around 111.40. The pair stays close to the upper end of the range and may rally further amid lack of demand for safe haven assets and high Treasury yields which remain within striking distance from the recent multi-year highs. A daily close above the 111.00 threshold will confirm the bullish break and signal a high probability of another leg north.
EURUSD has trimmed intraday losses after a dip to fresh 2018 lows at 1.1716. The pair has recovered towards the 1.1760 area but remains within the downtrend. Moreover, the risk of losing the 1.17 mark persists as long as the single currency remains below 1.1850. The US has released the Chicago Fed National Activity Index for April, which came in at 0.34 vs. 0.14 expected. In part, the latest bullish impetus in the dollar was restrained by some cautious comments by Fed’s Kashkari who said the central bank should not move too fast to raise rates. On the whole, the greenback still has the potential to go higher, especially if the Fed meeting minutes due on Wednesday signal a hawkish rhetoric on the monetary policy.
The pound briefly dropped to late-December lows below 1.34 where the pair met some demand and recovered slightly. Apart from rising dollar, sterling feels the additional bearish pressure from Brexit uncertainty and the reports that Scotland will consider a new referendum on independence when the British government offers some certainty over the “divorce process” with the EU. By the way, a spokesman of British Prime Minister Theresa May highlighted today that now is not the time for a second referendum on Scottish independence. Against this background, GBPUSD will remain vulnerable in the short and medium term. Technically, the downside risk for the pair has increased, since the price has derailed the psychological support of 1.34. The pressure will partially ease if the pound recovers ground above the 200-DMA at 1.3560.
Brent crude struggles to regain the upside momentum since Friday. The bulls has retreated a bit after a failed attempt to make a clear break above the $80 threshold. The price barely holds above the 100-SMA on the hourly chart which comes around the $78 mark. The correction takes place despite the bullish signals for bulls. In particular, IEA’s Birol called Venezuela one of the biggest risks in the oil market in the coming month. By the way, the fall in this country’s oil production has already had a great impact on crude prices this year amid a deep crisis in the Venezuelan economy. Meanwhile, the US Secretary of State Pompeo confirmed that the US sanctions on Iran will be the strongest ones in history once they come into full force. On the whole, the fundamental picture in the oil market remains positive, the ongoing correction may deepen in the short term before the buyers return at more attractive levels. So, a high possibility for another leg higher remains.
Nathan Lambert, Head of Global FX Analytical Departament