Tuesday, April 16, 2019

Will fresh data today force a break out of consolidation for the major instruments?

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

MORNING BRIEFING

Consolidation is the name of the game at the start of the week with most markets treading water during Monday's session. However, a host of fresh data from around the globe seems poised to prompt some short-term volatility just a couple of days before Easter. The focus today will be divided between Europe, the UK and the US with key reports pending for release while market participants are looking for a fresh catalyst that will drive the European majors and the Dollar out of their current narrow ranges. Equities were mixed yesterday while commodities also lacked any meaningful action.

Starting with the Euro, the shared currency is currently hovering just above the 1.13 mark waiting for fresh momentum. The Eurozone ZEW Survey should trigger some price action today, depending on the way it prints. Expectations are set for a mixed release with the Current Situation component predicted to print softer while the Expectations part of the report is seen improving. The economic performance of the Euro area has picked up somewhat over the recent weeks, with the Services sector showing some strength, but the risks on the horizon may force participants to remain cautious. Depending on how the report comes out, the Single currency may attempt to revisit the 1.1330 highs or reverse towards 1.1250.

The Pound still oscillates around the 1.31 mark with Brexit being the key risk event but today the spotlight will fall on the UK labor market figures from March. According to the PMI reports, conditions in the various business sectors remain encouraging but the real question is what happens with wages: Brexit is a huge uncertainty and even though hope was there last month that Britain would get an extension, this may not have been enough for British companies to pay employees a bit extra. Depending on the manner the figures come out, Sterling may see a fresh push above the 1.3130 peak and towards 1.32; otherwise a soft round of data will leave the British currency in limbo.

The Dollar saw no meaningful action over the past 24 hours. Even though the calendar holds a couple of reports from the US side - namely the industrial and manufacturing production figures - investors' focus remains on the retail sales data pending for release on Thursday. Given that analysts expect the report to print in a positive manner and the higher inflation expectations coming from last week's PPI figures, the greenback should remain well supported in the interim. Dollar/Yen is trading at 112 and a consolidation around the current levels - or maybe a slight push higher - seems more likely, especially with equity futures in the green this morning.

Gold attempted to rebound yesterday and made it to the $1,290 level but the lack of follow-through is telling. Traders are pretty much focused on the equity markets' performance and the geopolitical risks - or lack thereof - on the horizon and Gold is suffering as a result. Prices remain around $1,285 this morning and a deeper correction towards $1,282 seems more likely; for a reversal to be a scenario worth considering we first need to see a clear break above the $1,290 level. Oil continues to move lower and the test of the $63 mark will be decisive: a break lower targets the $61.50 area, otherwise a consolidation between $63 and $65 appears as the way forward.

Equities ended the day mixed with Europe on solid ground and the US just a little bit below water. Nonetheless, equity futures on both sides of the Atlantic are pointing higher this morning, which is indicative of the bias among market participants right now. The earnings' season progresses in a moderately positive fashion in the US, which sustains the bullish bias in the markets. As long as we don't receive any negative headlines from the States, the price action will continue pointing higher.

MARKET EVENTS TO WATCH

  • UK Unemployment Rate - 12.30pm
  • UK Average Weekly Earnings - 12.30pm
  • German ZEW Survey - 1pm
  • Euro-Zone ZEW Survey - 1pm
  • US Industrial/Manufacturing Production - 5.15pm

All times are GMT +4.

Written by Konstantinos Anthis, Head of Research