Monday, July 2, 2018

Currency and equity markets in the red with investors worried about politics and trade

Tags
  • Dollar
  • Gold
  • Yen
  • Euro
  • Pound
  • Stocks

MORNING BRIEFING

Markets start the week in the red with investors worried about the stalemate in discussions within Angela Merkel's coalition government in Germany and Trump's intention to slap China with more tariffs again. We're looking at a busy week ahead of us to mark the start of the new month and quarter, with the FOMC minutes' release on Thursday followed by the Non-Farm Payrolls report on Friday so it goes without saying that the Dollar will be front and center over the next few days. At the same time, fresh PMIs from the UK will also attract investors' attention on the Pound mid-week.

Starting our markets' overview with the Euro, the shared currency is trading with a bearish bias this morning as ongoing negotiations between Merkel's CDU and its coalition partner regarding immigration have not reached any agreement. Traders are concerned about the possibility of political instability in Europe's largest economy and the Euro is hovering around the 1.1650 area at this time. A break lower today will signal a short-term peak for the Euro and will expose the 1.16 and 1.1550 area.

The Pound will demand our attention this week in light of the release of the most recent PMI data from the UK starting with today's Manufacturing PMI report. The data is expected to come in slightly softer today which would take away some of the gains seen at the end of last week. Cable is trading above 1.3150 but softer UK data and a Dollar recovery will put this area to the test and a move lower brings up the 1.31 figure as the next mark. Euro/Pound also broke above its 0.8830 resistance last week so potentially more Pound weakness should send prices towards and above the 0.89 area.

The Dollar will clearly dominate the headlines this week with two major events over the next few days. The release of the minutes from last month's FOMC meeting will be closely watched on Thursday; it was the meeting when the Fed tilted towards 4 rate hikes this year and investors will be eager to find out whether this decision was broadly supported by the Fed policymakers. At the same time, the NFP report on Friday will also play a key role as both events should solidify investors' conviction for a strong Dollar in Q2. Dollar/Yen recovered 200 pips last week and further strength will drive prices above 111.00 en route to the 111.50 resistance.

Commodities started the week in the red with Gold shedding Friday's gains to trade below $1,250 while Oil is just shy of the $73 mark. The yellow metal has a hard time breaking away from its recent downtrend and depending on Dollar's performance we could be in for more losses - a move below the $1,245 level will expose the $1,240 area. At the same time, Oil is weak this morning following recent remarks from the US President that OPEC is manipulating prices and that he wants to see a higher production output. Nevertheless, as long as we trade above $72 the uptrend stays in place and a test of $75 would be next.

Finally, equities are trading with a bearish momentum this morning with stock traders focused on the political uncertainty in Germany and the continued exchange of trade tariffs between the US, China and the rest of the global economies. The Asian markets are deeply in the red at this time and the European and US futures are pointing towards a negative opening bell. The FTSE 100 is poised to test the 7,600 points' area while the Dow Jones is trending towards the 24,000 points' lows and a move below that will take us a good 300 points lower.

MARKET EVENTS TO WATCH

  • UK PMI Manufacturing - 12.30pm

  • US ISM Manufacturing - 6pm

All times are GMT +4.

 
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