European stock markets opened higher on Monday, but turned mixed afterwards amid political turmoil in Italy and Spain. The anti-establishment 5-Star and League parties failed to form coalition government, and now the third largest euro zone economy will likely have to hold early elections. Meanwhile, Spanish parliament has fixed the date for vote of confidence in the Prime Minister Mariano Rajoy for June 1. As such, Italy’s FTSE MIB is losing almost 3.00 per cent after an early rise. France’s CAC 40 sheds 0.19 per cent to 5,532, while German DAX 30 rises marginally by 0.02 per cent to 12,941. The UK and US markets are closed today due to national holidays.
The euro resumed its decline after a brief recovery attempt in Asia. EURUSD faced a local resistance at 20-hour SMA around 1.1730 and turned negative. The pair has accelerated its decline recently and refreshed November lows around 1.1630. Apart from political uncertainty in the two European countries, the single currency feels the pressure from a dovish ECB outlook amid still low inflation and slowing economic growth. Moreover, the dollar bullish trend remains intact and may get even firmer, should the US data due this week confirm the continued economic growth. Against this backdrop, the bearish outlook for the pair remains viable and relevant. Now, when EURUSD has derailed the previous lows, the 1.16 support is the next target for EUR bears.
GBPUSD is trading within a rather muted range, close to opening levels after bullish attempts faces offers around the 1.3340 area. Bears remain in control as the pound feels the pressure from Brexit uncertainty and low prospects of the next rate hike by the Bank of England. The pair is attempting to keep above the 1.33 threshold, but the dollar bulls seem to prepare for another attack, though the overall sentiment around the greenback looks more contained now as the US Treasury yields are off long-term tops for now. Further direction in the pair will depend on the overall market sentiment and the dollar trajectory which signals further strength. Should the cable fail to preserve the 1.33 mark, fresh half-year lows will be tested.
USDJPY was rejected from the 20-DMA around 109.80 and gradually slipped below the key short-term moving averages in the hourly charts. The pair is trading lower despite the overall USD bullishness as investors remain cautious, assessing the potential risks from political turmoil in euro area and the prospects of a US-NK summit next month. Against this background, traders tend to buy the safe haven assets including the yen. Therefore, should the political tensions ease on coming days, the Japanese currency may get under a bearish pressure again. So, the pair may attract buyers amid attempts to retest the 109.00 level. The immediate resistance comes at 109.60.
Brent crude is trading in the red after a 3% drop on Friday. Market concerns over supply shortage gave way to downside risks for prices amid Saudi Arabia’s and Russia’s plan to increase oil output by some 1 mln bpd in the second half of the year to address potential supply shortfalls amid the US sanctions on Iran and Venezuela. The negative sentiment was exacerbated by signs of further increase in the US crude production as the number of oil rigs jumped by 15 last week, to fresh March 2015 highs. From the technical point of view, Brent needs to remain above the $75 figure in the short term to avoid refreshing three-week lows below $74,50. As the recovery impetus looks quite timid and limited, the bearish risks still prevail in the market.
Gold prices are back below the $1,300 threshold as Friday’s bullish attempts were rejected around $1,307 where the key 200-DMA lies. As long as the greenback is trading within its uptrend, the precious metal will likely continue to attract sellers on rallies, and the $1,280 area is still at risk. The metal needs a decent correction in the buck to ease the immediate pressure. As long as the dollar remains at this year highs, a slight risk aversion won’t be enough to revert losses and prevent gold from further declines, despite the metal looks quite attractive and cheap for opening longs at current levels.
Nathan Lambert, Head of Global FX Analytical Departament