KEY TALKING POINTS
Investors' focus returns on Europe today ahead of two key releases from the continent, while the broader geopolitical backdrop remains unchanged. The Eurozone ZEW Survey, measuring financial experts' opinion on the economic situation of the area, and the UK employment figures are the important releases of the day that will take a toll on the price action of the European currencies. The Dollar was largely unchanged, with Treasuries closed yesterday while Oil and Gold climbed to new highs. European equities were mostly positive and the US markets were closed for Washington's holiday.
Starting with the Euro, the currency was able to climb above 1.13 yesterday but ended the day challenging this key short-term support. Recent news from the US suggested that President Trump is again considering imposing trade tariffs on EU auto imports, which if it happens it will weigh on the Eurozone economy and the Euro in return. At the same time, the ZEW Survey today is expected to print better than last month's but still in negative territory as economists understand the challenges the Euro area currently goes through. As such, an attempt to break below 1.13 is expected and whether it will be successful or not will dictate the short-term action for the shared currency. Should the 1.13 level give in, then prices will look to revisit the 1.1270 area. Otherwise, a swift recovery towards the upside will bring the 1.1340 area back into focus.
The Pound remains volatile as ever during the recent weeks as traders' sentiment in regards to Theresa May achieving a soft Brexit swings back and forth. According to a news report, UK and EU officials are trying to find a way to overcome the Irish backstop roadblock while May attempts to keep her domestic opposition at bay. Today's employment data is expected to print strong, indicating that at least the labor market is still a positive sector of the UK economy. Would this report help the Pound move higher? It is possible, but Sterling faces a strong resistance lying at the 1.2920-40 area and unless we see swift progress in the Brexit front it may be hard for the British currency to overcome it at this point.
Gold rallied further yesterday and moved above the $1,228 mark, only to settle a couple of dollars lower. Dollar's weakness has been the contributing factor to Gold's surge but as we mentioned yesterday, the progress in trade talks in Washington will play a key role in dictating what's next. We see two scenarios: good progress that will reduce safe haven flows and drive prices to $1,300-4 or a breakdown in talks that will fuel the risk-off bias and take prices towards $1,340-50. Oil extended its gains and reached $56 and as long as prices hold above $55 we will remain firm on our $58 level as the next area of interest.
Finally, equities had a muted start for the week with the US markets closed for Washington's birthday while the European bourses scored marginal gains. Investors are gripped by the new round of trade talks in D.C. and their risk appetite largely depends on whether we see meaningful progress or not. In any case, the US markets are already posting new yearly highs and their European counterparties are following suit, mostly on the back of Fed's decision to stay put in regards to interest rates, at least for now. As such, progress in the trade front will help equities extend gains but signs of a breakdown will quickly reverse the flows, given that fears of a potential global slowdown still linger in the back of investors' minds.
MARKET EVENTS TO WATCH
- UK Unemployment Rate - 1.30pm
- German ZEW Survey - Current Situation - 2pm
- Euro-Zone ZEW Survey - Economic Sentiment - 2pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Research