Macro economics

Analytics on 03/06/2020. Stocks and oil rally, dollar bears remain in control

European stock markets opened in the green on Wednesday as investors further expressed optimism over the economic recovery from the coronavirus pandemic. Upbeat economic data added to the positive sentiment in the global financial markets as service PMIs out major countries came in better than expected. Also, ahead of tomorrow’s ECB policy meeting, traders expect that the central bank will expand the size of its PEPP stimulus. Meanwhile, the German foreign minister confirmed lifting of a travel ban for EU member states from 15 June. On the negative side, the Bank of England warned UK banks to step up plans for a no-deal Brexit. Against this backdrop, the UK’s FTSE 100 gains 1.29% to 6,300. Italy’s FTSE MIB edges higher by 2.32 percent to 19,410, France’s CAC 40 rises by 1.96 percent to 4,954, while German DAX 30 gains 2.34 percent to 12,302. U.S. stock index futures are up despite the ongoing riots in the country.

In currencies, the dollar remains on the back foot as the safe-haven demand continues to ease amid a robust rally in risky assets. As such, EURUSD rose to 1.2227 but is yet to confirm a break above the 1.12 barrier on a daily closing basis. Later in the week, the pair may come under the renewed selling pressure amid the potential profit-taking, especially ahead of the upcoming ECB meeting. On the other hand, further direction in the common currency will depend on the central bank’s rhetoric. Considering decent economic updates, the monetary authorities could give a fairly positive economic estimate which in turn may give the additional support to the pair amid broad-based dollar weakness.

Meanwhile, USDJPY has slowed its ascent after a rally witnessed on Tuesday. Still, the pair continue to target the 109.00 figure, a break above which will mark further improvement in the short-term technical picture for the greenback. Furthermore, the key moving averages now act as a support zone around 108.40, suggesting the downside risks are limited as long as the prices stay above this level. Should positive risk sentiment persist in the near term, USDJPY could challenge the 109.00 barrier but it may need the additional catalyst to confirm a break above this level.

In commodities, Brent crude registered nearly three-month highs around $40.50 but was rejected by this local resistance where the 100-DMA lies. as a result, the prices retreated below the $40 handle which continues to act as the key resistance. On the other hand, the market is still supported by upbeat investor sentiment. On the other hand, there are growing risks of a deeper downside correction, especially amid reports that OPEC+ meeting is in doubt amid a dispute over compliance and oil quota cheating.

Nathan Lambert, Head of Global FX Analytical Department

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