Wednesday, July 25, 2018

Currencies and equities are looking for direction ahead of the Trump-Juncker meeting

Tags
  • Dollar
  • Yen
  • Euro
  • Pound
  • Stocks

MORNING BRIEFING

The Euro is front and center this morning ahead of the meeting between US President Donald Trump and the European Commission President Juncker in Washington. The topic of the discussion will obviously be around trade sanctions and how to find a way for the two economies to work better together. The Dollar was seen climbing higher overnight while equities gained yesterday but at the same time there's a sense of caution in the markets are investors are taking a “wait and see” approach ahead of the key event.

Starting with the Euro, the shared currency is trading either side of the 1.17 figure which we have highlighted as the important “pivot” point that will decide whether the currency pair will extend its earlier gains or whether a fresh swing lower will come next. The two parties, the US and the EU, are coming to the table against a negative backdrop as Trump accused the EU of currency manipulation last week while this morning the EU Trade Commissioner said that they have a plan for $20bn tariffs if the US slaps levies on auto imports from Europe. It's clear that today's price action will hinge on the outcome of these discussions hence the cautious bias this morning.

Earlier in the day and before the Trump-Juncker meeting takes place, the release of the IFO Survey will set the stage: analysts are expecting slightly softer data and this could put the Euro under some early pressure. The intra-day levels that will attract investors' attention are the 1.1660 and 1.1720 figures as a break above or below these will dictate the short-term bias. Should we see a move to the downside, our next area of focus lies around the 1.16 mark while a push higher will drive prices towards the 1.1750 highs.

The Cable and Dollar/Yen are also trading near key levels and depending on how the Dollar trades today we should see more meaningful price action. The Pound is challenging the 1.3150 highs after yesterday's news that Theresa May will be heading the Brexit negotiations herself, suggesting a stronger push towards a soft Brexit. A clear break above the aforementioned resistance exposes the 1.32 area and 1.33 in extension. Concurrently, the Dollar/Yen has been building a base of support above the 111.00 mark and if it succeeds in overcoming the 111.50 barrier then we should see a rally all the way to 112.20.

Commodities are trading with a positive bias this morning with both Gold and Oil climbing higher overnight suggesting a simultaneous improvement in sentiment. For Gold, the interim resistance lies at the $1,230 mark and the level to focus above this is found $5 higher. At the same time, Oil proves its resilience once more by bouncing off the $67 support zone to hit $69 overnight. Nevertheless, the key resistance is found at the $70 area and until we see a break higher we cannot discuss a broader bullish tilt.

Equities had a stellar day yesterday with all the European bourses closing higher for the day while the majority of the US indices closed above water as well. This morning, the Asian markets are trading in a mixed manner and the European and US futures do not provide a clear direction. We believe that stock traders are taking a cautious approach ahead of the Trump - Juncker meeting as the stakes are high; a positive meeting with promises about removing trade levies will help stocks continue higher while a disagreement and an exchange of threats will dampen sentiment and equities will shed their recent gains.

MARKET EVENTS TO WATCH

  • German IFO Expectations - 12pm
  • German IFO Current Assessment - 12pm
  • U.S. Crude Oil Inventories - 6.30pm
  • EC’s Juncker meeting with US President Trump in Washington

All times are GMT +4.

 
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