Wednesday, September 12, 2018

Volatility is the dish of the day with fresh news dictating the price action

Tags
  • Gold
  • Euro
  • Pound
  • Stocks

MORNING BRIEFING

Volatility in the currency markets remains elevated during the second week of September with the European majors leading the pack as fresh news and central bank meetings dictate the price action. Both the Euro and the Pound were quite active yesterday with large price swings that failed to provide direction though while the Dollar gained versus the Japanese Yen. Equities ended the day mixed with most US markets closing above water while the European bourses were marginally in the red, Asia is trading slightly bearish this morning.

Starting with the Pound that has dominated the headlines during the past few days, fresh optimism from EU's Barnier combined with strong UK growth and an extension of BoE Governor's term to 2020 should have driven the British currency to 1.32. However, investors realize that the upcoming BoE meeting this week will not change the status quo with rates staying put for some time while PM May's administration might be under threat from party hardliners. As such, the gains were limited and the Pound starts the day where we found it 24 hours ago. Having said that, we should expect the bullish bias in place to help Sterling proceed higher towards 1.31 barring any nasty surprises from the UK political arena.

The Euro was on a similar trajectory yesterday climbing above 1.16 only to retreat and end the day where it started. The upside potential for the Single currency seems a bit more limited compared to the Pound: the ECB meeting this week will not alter the cautious narrative coming from Mario Draghi, there's a strong technical resistance around the 1.17 level and fresh US data keep the Dollar well supported. As such, we would expect the shared currency to remain trapped between 1.1550 and 1.17 in the short-term, with the odds slightly in favor of a break to the downside in the medium term.

Gold and Oil both moved higher yesterday but their respective outlooks appear different this morning. Gold bounced from the $1,190 support level again to rally towards the $1,200 resistance but any potential for momentum building is capped by Dollar's strength. Looking ahead, the bias is still bearish for the yellow metal and unless we see the greenback turning suddenly weaker the ceiling for Gold lies with the $1,200 and $1,205 resistance levels. Oil on the other hand has more chances to rally further, hurricane Florence threatens to disrupt supply and distribution lines which may drive prices towards the $71 area.

Equities were mixed yesterday with the US markets in the green and Europe posting only marginal losses. The futures on both sides of the Atlantic are pointing towards a positive opening bell this morning and it seems that investors are growing a little bit more aggressive seeing that there's no fresh news from Trump's trade war agenda while European political risks have also subsided. The interesting question is whether this respite will allow the battered European indices finally come off their lows; 7,300 and 12, 040 are the interim resistance levels for the FTSE and DAX respectively.

MARKET EVENTS TO WATCH

  • Euro-Zone Employment - 1pm
  • U.S. Crude Oil Inventories - 6.30pm

All times are GMT +4.

Written by Konstantinos Anthis, Head of Research

 
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