Tuesday, November 13, 2018

Fresh data pending from Europe and the UK but the focus remains on politics

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

MORNING BRIEFING

Investors' focus remains fixed on the Euro and the Pound for yet another day today in light of fresh data from both economies. However, even though the spotlight may fall on the most recent figures from Europe and the UK the main driver for both currencies remains politics. The Dollar edges higher enjoying inflows from its European peers but posted losses versus the commodity dollars as rumors about a US-China trade deescalation emerged. Gold moved further to the downside followed by Oil that dropped below $60 again after a tweet from President Trump.

Starting with the Euro, the shared currency saw prices dropping below 1.13 yesterday to reach as low as 1.1215 before recovering slightly overnight. The main issue for the Euro remains Italy's budget and today is the deadline for the Italian side to submit its revised proposal to the EU. According to comments made by Deputy PM Salvini, the coalition government is not willing to give in, putting increased fiscal spending in priority.

At the same time, the pending ZEW Survey data, due for release later in the day, is expected to print softer this month, reflecting the uncertainty fueled by the US-led trade war, the ongoing Brexit talks and Italy's fiscal issues. Given the risk posed by a potential full-blown confrontation between Italy and the EU and expectations for a bearish consumer confidence reading the Euro looks poised for more losses. Technically, the next area of support for the Single currency is found around the 1.1180 level which would mean another day of losses for the weakening Euro.

The Pound will be front and center as well with the UK labor market report pending to be released early in the afternoon. The fresh data is expected to highlight a strong employment environment with the unemployment rate potentially dropping below the 4% mark while wage growth is predicted to be very robust. These conditions would generally indicate a very healthy domestic economy but it's the threat of Brexit that looms over the UK's outlook. As such, even though today's data might print on the positive side the Pound will likely find it hard to rally in a significant manner. The 1.2950 level seems to be capping any potential gains for Sterling today, especially ahead of a number of other UK-related reports later in the week that may not prove equally bullish.

Gold continues its free fall hitting $1,200 as expected on the back of the continued Dollar strength and news that US and China may find a way out of their trade spat, further reducing risk-off demand. Technically, the yellow metal seems severely oversold, having lost almost 3% during the past few trading sessions. However, there may be another leg lower pending before Gold finds a bottom and we're focusing our attention on the $1,195 level. Oil was unable to muster enough support to break higher yesterday following President Trump's response to Saudi Arabia's intention to reduce exports. The US President said that “prices should be much lower based on supply” but if the Saudi side goes ahead with the export reduction then we should be expecting a recovery in prices soon.

Equities reversed early gains to end the day under water yesterday responding to European risks and tech-related stock losses in the US. This morning news that the US Treasury Secretary and the Chinese Vice Premier are discussing trade issues ahead of the G-20 meeting later this month is helping improve investors' sentiment. Futures on both sides of the Atlantic are pointing higher and we should be in for a positive day, barring any unpleasant surprises from Italy's budget discussions.

MARKET EVENTS TO WATCH

  • UK Unemployment Rate - 1.30pm
  • Euro-Zone ZEW Survey - 2pm

All times are GMT +4.

Written by Konstantinos Anthis, Head of Research