Friday, June 29, 2018

Euro and equities rally as EU summit produces an immigration deal

Tags
  • Dollar
  • Yen
  • Euro
  • Stocks

MORNING BRIEFING

The Euro is front and center this morning after the European Union summit produced an agreement to stem immigration flows and share the responsibility of handling those who do arrive. The shared currency jumped 80 pips when the agreement hit the wires and prices are now trading around the 1.1650 area. Nevertheless, short bets on the Euro didn't really budge as investors continue to look for downside exposure on the currency casting doubts on whether a meaningful reaction higher can take place.

From a technical perspective, the Euro is capped by the 1.1650 resistance in the short term and for a move higher a sustained break of this barrier is needed. The Eurozone Consumer Price index might be a good intra-day catalyst to drive price action; the report is expected to come in mixed so there's room for a surprise today. If we do see prices breaking above the 1.1650 area then the next level to focus will be the 1.1720 highs, otherwise a retreat to 1.16 is the alternative scenario.

The Dollar/Yen is also worth keeping an eye on today as it's edging higher since the start of the week. The currency pair is now testing last week's highs around the 110.80 level and indeed momentum has been slowing down suggesting a lack of enthusiasm among traders. Having said that, the US PCE inflation report is due to be released later in the day and with expectations set for a positive reading the Dollar could get further support. For Dollar/Yen, an extension to its rally exposes the 111.30 May highs.

Commodities are finally trading in the same direction with Gold posting small gains to join Oil's bullish trend. The yellow metal however remains on a broader bearish trajectory and the pullback to the $1,253 area will most likely attract fresh selling interest that will target the $1,246 area. Oil rallied to $74 yesterday to extend its move higher which now spans more than $10 in just over 1 week. Technical studies suggest that the move is overstretched and a correction might be triggered but with fundamentals supporting more gains we wouldn't want to be on the selling side today.

Equities are rejoicing after the EU summit agreement with a sea of green seen across all markets. Asian bourses are trading with strong gains while the European and US futures are pointing towards a strongly bullish opening bell. Clearly, the agreement in Brussels removes one of the major risks for European equities but whether it will resolve the migration crisis remains to be seen. Nevertheless, this is a good opportunity for stock bulls to jump into the fray again after sitting on the sidelines for a few days as markets were trading in the red.

MARKET EVENTS TO WATCH

  • Euro-Zone Consumer Price Index - 1pm

  • US PCE Core - 4.30pm

All times are GMT +4.

 
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