After a predominantly negative dynamics in Asian markets, European benchmarks edged lower on Monday, as consumer stocks were in the red and the flash Eurozone purchasing managers' composite index came out at 55.2 in April, the same level as in the previous month. The regional markets continue to digest Friday’s message from European Central Bank President Mario Draghi who said that the euro area’s growth cycle may have peaked. On the other hand, the pressure on stocks is limited amid expectations of a dovish tone by the European central bank during the upcoming meeting on Thursday. Additionally, the euro’s decline compensates for negative factors. As such, Britain’s FTSE 100 is trading almost flat at 7,369, France’s CAC 40 rises by 0.12 per cent to 5,419, while German’s DAX 30 adds 0.12 per cent to 12,555. Wall Street futures are treading water amid investors’ caution ahead of another portion of corporate earnings as well as on the back of rallying US Treasury yields.
The dollar continues its widespread ascent due to a jump of US bond yields close to the 3% threshold. Euro tumbles further, nursing losses for a third straight day. The EURUSD pair slipped to fresh two-week lows on Monday around 1.2225 and now threatens to challenge the psychological 1.22 mark where the 200-DMA lies. Besides the widespread dollar demand, the single currency fell victim to profit taking ahead of this week’s ECB meeting as Draghi is widely expected to deliver a rather mild tone and refrain from any hawkish signals about the tightening prospects. The broader fundamental picture has worsened either, as latest economic numbers point to a slowing GDP growth in the euro area. Nevertheless, the greenback may quickly retreat, should the US Treasury yields start correction from the key 3% level.
GBPUSD keeps bleeding for a fifth day in a row. The pair dropped to one-month lows at 1.3940 after a break below the psychological support 1.40 earlier in the day. The pound is under a double pressure now. Apart from USD index rise, the British currency’s attractiveness decreases along with May rate hike by the Bank of England. The market participants are still under impression from recent Carney’s dovish comments on the monetary policy. A more cautious approach by the central bank looks quite logical, considering the dismal economic figures from the UK as well as the lingering risks stemming from Brexit as the Irish border issue is still unresolved. Considering the shift in the regulator’s rhetoric, GBPUSD may well continue to lose ground down the road, should the greenback stay elevated. The immediate bearish target for the pair is now at 1.39.
USDJPY has challenged the 108.00 mark for the first time since mid-February amid the dollar demand. The rise in bond yields is especially painful for the Japanese currency which lacks impetus amid rather neutral market sentiment amid the decreasing geopolitical uncertainty. The pair reached the 108.27 level and keeps around the daily highs. Should the greenback manage to show a daily close above the 108.00 mark, the technicals will open the way to fresh tops, though the risk of profit taking also increases now. It will be extremely hard for the dollar to preserve its bullishness, should the Treasury yields start to retreat in the short term.
Crude oil prices accelerate the downside correction from 3.5-year-highs reached last week. Brent slipped from tops above $74 and touched the $72.45 level after the asset failed to keep above the $73 mark earlier in the day. The OPEC-inspired optimism in the market was alleviated by the report that US drilling activity continued to rise over the last week, which signals further increase in production. Additionally, Brent feels the pressure from dollar rally as well as due to technical factors, as the current high levels are rather attractive for profit taking. The barrel now needs to keep above the $71,55 level in order to avoid a more aggressive correction.
Spot gold is losing ground for a third straight day. The yellow metal, which is under pressure amid a widespread dollar ascent, broke below the $1,330 threshold and accelerated its decline, probing two-week lows below $1,324. Short-term technicals for gold look bearish as the metal has lost a number of important levels on the way south. The immediate support is now expected at $1,322, while the nearest resistance lies around $1,328. Only above $1,330, the short-term downside pressure will ease.
Nathan Lambert, Head of Global FX Analytical Departament