European stocks pushed higher on Monday, following a positive sentiment in Asia, as investors continue to digest the comments by Federal Reserve Chair Jerome Powell who sees further, gradual rate hikes down the road. The Chinese yuan trades steadily after PBOC support on Friday, which adds to the general positive sentiment across the globe. Meanwhile, the UK markets are closed for a long weekend as it is a bank holiday in the country. On the whole, the trading flows are rather muted amid thin liquidity amid a very light economic calendar and the lack of geopolitical news.
As such, France’s CAC 40 adds 0.45 per cent to 5,457, while German DAX 30 rises by 0.54 per cent to 12,461. Italian stocks are lagging, with MIB adds just 0.15 per cent due to concerns about the upcoming budget talks with the EU.US stock index futures continue to rise after a close at record highs on Friday amid the cautious Powell’s tone as well as due to some progress in US-Mexico trade.
The dollar tried to regain ground earlier in the day, along with the Japanese yen as the Turkish lira came back in focus amid a 5%-drop at the start of a new trading week amid the persistent diplomatic conflict between the US and Turkey. However, this wasn’t enough to make the greenback attractive again as the currency continues to digest Powell’s message, which was considered by USD bulls as somewhat “dovish”.
Besides, the lack of fresh negative developments in the US-China trade war allowed for a comeback in risk sentiment, which derails the dollar demand as well. This week is rather light in terms of economic releases, so the markets will be focused on geopolitics mainly. In this context, investors will monitor the developments in the Chinese, Turkish and Mexican front. The buck demand could reemerge should the risk appetite subside down the road.
The EURUSD pair has faced a stiff intermediate resistance of 1.1650, where the early-August highs lie. The recent rally in the euro was mainly due to dollar weakness on comments by Trump and Fed’s Powell. But at this stage, there are no clear signs oа a reversal in the USD bullish trend which is in play since mid-April. As such, the single currency could encounter a selling interest above 1.17 and attract some profit taking in the coming days if the greenback doesn’t face a fresh bearish catalyst. In the short-term, the pair needs to show a clear break above the 1.1650 area to proceed with the ascent.
USDJPY has been on the defensive after a flat trading on Friday. Despite the risk-on sentiment, the yen demand looks stronger and this confirms the dollar’s local weakness. The price is losing the 111.00 threshold again, after a rise to the 111.50 region on Friday. This level is the key barrier on the way to further rise, while the immediate support now comes at 110.80, where the 14-DMA lies. The dollar’s upside potential is limited at the moment, but the currency could regain strength this week as the dust from Powell’s speech settles.
Brent crude oil has resumed the ascent after some correction earlier in the day. The price has regained the $76 level again, but refrains from challenging a Friday high of $76.74. The market feels nervous ahead of an OPEC monitoring committee meeting due later today. The general picture in the market looks positive, with the prices have an upside potential, but lack a catalyst. A daily close above the $76.30 area will come as a bullish technical sign.
Nathan Lambert, Head of Global FX Analytical Department