From Turkey's troubles to a new US-China attempt to find common ground, investors' sentiment has been swinging from bullish to bearish throughout this week. News that a Chinese delegation will visit Washington later this month with a plan on how to end - or at least deescalate - the trade tensions between the two nations is helping improve risk appetite today. Higher beta currencies are attempting a recovery against the Dollar while equity futures are trending higher ahead of the London opening bell.
Starting with the Dollar, the US currency is seen pulling back from its recent highs this morning as the improving risk sentiment is helping the rest of the major currencies off their lows. Even though yesterday the US Retail Sales report printed stronger than expected underpinning the continued domestic growth, the greenback is now declining versus the Euro, the Pound and the commodity dollars. Clearly at this stage we can only treat this as a pullback from recent strength and even though we may see a deeper retreat until the end of the week - given the empty US calendar - the broader bias for the Dollar continues to point higher for the medium term.
The Euro has been battered during the course of the past few days hitting 1.13 yesterday but it looks like the bears got what they were looking for in the short-term. The improvement in risk sentiment following the news about the fresh US-China approach kicked off a profit-taking exercise that is driving the shared currency towards 1.14 this morning. There's nothing on the calendar today to help extend this rally but tomorrow's Eurozone inflation data might be just what the Euro bulls need to breathe a bit easier - 1.1430 is the near-term resistance. In any case though, as long as the Single currency trades below 1.15 the bias stays negative and we will need more evidence before we can start considering a broader reversal to the upside.
The Pound is also benefiting from the easing in safe haven demand and prices have climbed above 1.27 overnight. The positive inflation report from the UK yesterday did little to change the negative bias surrounding the British currency as investors are focused on Brexit rather than domestic performance. Having said that though and given the improving risk sentiment today, we may see Sterling extending its gains during the course of the day. This would become even more likely if the UK Retail Sales data prints strong as expected, on the back of the recent good weather and “World Cup fever” seen in the UK. The level to focus on is the 1.28 mark with an interim resistance at 1.2740.
Gold extended its recent collapse to trade as low as the $1,160 mark yesterday pressured from the advancing Dollar. However, a $20 recovery was noticed overnight and prices are now trading around the $1,180 mark. Gold's price action has been strongly correlated to Dollar's performance over the past 1 month so as long as we see the greenback taking a break, the yellow metal may recover further. Oil on the other hand broke below $66 again and any hopes for a swift recovery above $70 are now diminishing; the short-term bias for Oil points lower and a continuation towards the $63.50 area seems more likely.
Stocks in Asia are trading in the red taking their cue from the US session that saw all the major indices closing in negative territory. Nevertheless, the news that the US and China are willing to resume negotiations after the breakdown in talks 2 months ago seems to be helping the European equities that are about to open higher this morning. At the same time, the positive US Retail Sales data yesterday and expectations for a similarly bullish report from the UK today may help equity traders refocus on the growth story rather than geopolitical or emerging markets' risks.
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Written by Konstantinos Anthis, Head of Market Research