Tuesday, May 21, 2019

The Euro points lower ahead of the EZ Consumer Confidence data, Draghi's speech

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

MORNING BRIEFING

A quiet start for the week is about to give way to more volatility as a host of fresh data and public speeches from key policymakers is coming our way. During yesterday's session, most currency pairs traded sideways but already this morning the risk off sentiment takes center stage again with the Dollar leading the gains. The Euro is about to test its lows ahead of the Consumer Confidence report out of the Eurozone while the Pound is hovering above 1.27. Equities were in the red yesterday, Gold tread water around $1,275 and Oil stalled ahead of $64.

The Euro will come front and center this morning in light of the Eurozone Consumer Confidence report, which is predicted to print slightly better, albeit still in negative territory. However, the risk for the shared currency lies to the downside given the ECB's bearish bias, which should be echoed by Mario Draghi's remarks during his press conference tomorrow. As we discussed yesterday, Draghi has little to be happy about and the need for another - potentially very generous - round of quantitative easing is becoming more and more obvious. The Euro looks vulnerable and a break below 1.1150 clears the path towards 1.11.

Meanwhile, Dollar/Yen also looks interesting right now after a series of profitable sessions last week that drove prices above 110. During the past 24 hours, the currency pair retreated a bit but following the New York opening bell the move higher picked up pace and now challenges to break into fresh highs. Treasury yields continue to trend upwards and equities are about to open in positive territory so all the short-term catalysts are suggesting a continuation of the uptrend. A fresh leg higher points towards the 110.90 area.

Gold remained unchanged yesterday and is now about to challenge a long-lasting trendline that has supported its move higher since mid-2018. This is another important test for the yellow metal's prices that attempted to climb above the $1,300 mark earlier this month but failed. A continuation of the downtrend in place will bring the $1,267 lows into focus and given Dollar's strong momentum at this stage the short-term bias is to the downside. Oil stalled ahead of the $64 mark but the technical outlook appears supportive of further gains; combined with OPEC's commitment to keep production caps in place for the remainder of the year Oil looks poised for a move towards $65.

Stocks had a negative start for the week yesterday with European equities down 1.6% on average while the US markets closed with smaller losses. This morning though futures on either side of the Atlantic are pointing higher as trade worries are giving way to speeches from central bank policymakers. Given the broadening easing bias among the major institutions, equity traders focused on the longer term expect interest rates to be cut, providing a boon to the stock markets around the world.

MARKET EVENTS TO WATCH

  • BOE Governor Carney speaks in London - 12.30pm
  • Eurozone Consumer Confidence - 6pm

All times are GMT +4.

Written by Konstantinos Anthis, Head of Research