A quiet start for the week ahead that will culminate with the ECB interest rate decision and the US Gross Domestic Product data on Thursday and Friday respectively. In the meantime, the release of the Manufacturing and Services PMI figures from the US and the Eurozone will keep investors on their toes mid-week but the first 48 hours of trading should be relatively quiet. With limited risks on the horizon at this point markets seem to be turning risk-on with the European majors climbing and the Dollar posting gains versus the Yen. Gold stays within its recent range while Oil still consolidates around $69 per barrel.
The Euro is bouncing higher after testing the 1.1430 level for the second time this month on Friday and failing to break lower. Moody's downgraded the Italian debt at the end of last week but they dropped the rating only one notch compared to the market's bleaker expectations while EU Commissioner Moscovici offered positive comments regarding the country's budget deficit. Furthermore, the ECB rate decision should be another positive catalyst for the Euro as Mario Draghi should stick to his conservatively hawkish tone helping the currency recover further. From a technical perspective, the shared currency seems poised for a move towards 1.16 and depending on the Eurozone data on Wednesday and the Dollar's performance this move could extend all the way to 1.18 eventually.
The Pound is also on a positive footing this morning following news that the UK is considering dropping a key demand related to the Irish border in the Brexit talks, which raises the odds of a final agreement some time soon. A virtually empty economic calendar for the Pound this week means that Cable will take its cue from Dollar's performance and Brexit-related headlines. Even though the recent news helped the Pound come off its 1.30 lows there' a significant chance that PM May's willingness to allow the UK to remain in a transitionary phase for an extended period of time will trigger a revolt within her own party.
As such, if May stays in control of her administration and continues to guide the UK towards a soft Brexit deal the Pound we see a chance for prices to rally towards 1.3150 over the course of the week and depending on the Dollar's bias we could even see an extension towards 1.3250. However, we need to be mindful of any sudden change in momentum in case of a challenge from hard-line Brexiters; a break below 1.30 will open the door for a deeper correction towards 1.29 and 1.28 in extension.
The Dollar has been weaker against most of its peers at the end of last week but with the risk-off sentiment seen earlier in the month now receding the US currency is scoring gains versus the safe haven Yen. The US data pending for release mid-week is expected to come out positive with manufacturing figures already printing higher in several recent reports while the services' sector should continue its robust performance. Prices are challenging the 112.75 highs this morning and a successful break above this area will clear the path for a continuation towards the 113.50 area.
Commodities ended last week relatively unchanged with Gold oscillating around the $1,225 level while Oil tread water close to the $69 mark. Gold is an interesting case and following the break to the upside seen earlier in the month we may see a further move higher going forward. Changes in investors' positioning indicate a potential swift in bias - with fewer short contracts and an increase in long positions - while a weaker Dollar going forward may increase the odds of Gold extending its move higher. Should we are proven right then $1,265 is the next area of focus. Oil is trying to climb above $70 but the key level sits at $70.50; if prices hold below this then a deeper correction towards $67 is likely.
Equities in Asia are trading with a positive bias this morning while the European and US markets are preparing to open higher. Risk sentiment seems to be returning to the markets and with limited risks seen on the horizon this week investors are growing increasingly willing to dip their toes in the water again. The earnings season is in full swing and online giants Alphabet, Amazon, Snapchat and Twitter will be releasing their results over the next few days.
MARKET EVENTS TO WATCH
All times are GMT +4.
Written by Konstantinos Anthis, Head of Research