European markets are marginally higher on Monday as rising tensions in the Gulf boosted oil prices. At the same time, investors are getting more cautious ahead of this week’s European Central Bank meeting. Oil majors are posting gains amid rising geopolitical tensions following Iran’s seizure of a British tanker in the Strait of Hormuz. also, market participants are gradually shifting focus to the ECB meeting due on Thursday, with Draghi’s tone will help investors asses the prospects of a rate cut in September. Some traders expect the central bank to add stimulus as early as this week, however.
Against this backdrop, the UK’s FTSE 100 adds 0.35 per cent to 7535, Italy’s FTSE MIB gains 0.23 per cent to 21,692, France’s CAC 40 rises by 0.21 per cent to 5,563, while German DAX 30 adds 0.23 per cent to 12,288. US stock index futures are slightly higher on hopes for better-than-expected quarterly earnings. So far, more than 15% of the S&P 500 has posted their results. Of those companies, 78.5% have topped analyst expectations for earnings.
The greenback is trading higher against major counterparts, with EURUSD continues to oscillate around the 1.12 handle. The pair is further trading with a bearish bias after several failed attempts to make a decisive break above the 1.1275 area. On Friday, the common currency suffered heavy losses and got back below the 100-DMA amid a broad-based dollar recovery on contradictory comments from the Fed officials.
Now, market focus shifts to the ECB meeting and should Draghi’s tone come dovish, or the central bank delivers a rate cut, the euro will come under additional pressure despite the Federal Reserve also signals a shift to softer monetary policy. Technically, EURUSD continues to threaten the 1.12 support area, a break of which will open the way to the initial bearish target around 1.1180.
Amid a relatively positive risk sentiment, USDJPY extends the recovery, challenging the 108.00 resistance as the yen demand remains subdued since last Friday. However, the upside impetus looks limited, and the pair could resume the bearish move should riskier assets come under pressure again as the Federal Reserve sends contradictory signals and the geopolitical tensions continue to rise in the Middle east. As investors remain cautious, the pair will hardly be able to see a daily close above the 108.00 handle.
Crude oil prices received a boost earlier in the day following the news that Iran seized a British tanker in the Strait of Hormuz. Brent registered daily highs around $63.80 but had to retreat soon as worries about the global economy and oil demand continue to weigh the market. Meanwhile, a stronger dollar adds to the negative pressure. As such, Brent has settled around the $63 figure and struggles for direction amid conflicting signals. Should this week’s US data from API and EIA point to a rise in crude oil inventories, the selling pressure will intensify.
Nathan Lambert, Head of Global FX Analytical Department