The Pound climbs above 1.30 again on the back of comments from EU's chief negotiator Michel Barnier that a Brexit deal is “realistic” within the next 8 weeks. The positive news helped the Euro catch a risk-on bid as well hitting 1.16 while investors now shift their attention to fresh data from Europe and the UK with the British employment figures and Eurozone's ZEW Survey reports pending for release. Equities kicked off the week on a bullish bias disregarding the escalation of Trump's trade war threats and this morning futures are indicating a similar tone.
Pound's rally was the highlight of yesterday's session with the British currency gaining almost 150 pips following the positive news from the Brexit negotiations. Having said that though, what lies ahead may be a bit complicated: from a technical perspective Sterling is now trading at a key resistance as a break above 1.3050 clears the path for a move towards 1.32. But have things really changed that much to justify a further rally?
Clearly the comments coming from Barnier are indicative of EU's intention to strike a deal with the UK and that should keep the Pound well bid. However, within PM May's administration lies a fresh fight over EU law and whether it should apply in the UK after its official exit from the Union. This could bring forth fresh uncertainty that may offset the current positive bias for the Pound so the road ahead still looks complicated and the medium-term outlook remains mixed. In the short-term though, any price action today will be dictated by the UK employment data and a positive round of figures will allow Cable to take a first shot at overcoming the 1.3050 barrier.
The Euro is in the ascendancy as well this morning as progress in Brexit benefits the Union as well, in a time when the Italian politics risk seems to have receded substantially. With the Dollar unable to extend its gains after last week's NFPs, the shared currency is trading above 1.16 today and if the ZEW Survey indicates improved optimism over Europe's economy we may see further gains. The levels to focus are found at the 1.1650 and 1.1730 areas but investors should not fall asleep at the wheel; any sudden tilt in sentiment - potentially from Trump's trade war agenda - may turn the tables and send the Euro lower again.
Gold seems to have carved a short-term bottom just above $1,190 and yesterday's bounce from this level confirms that traders are looking for reasons to buy the yellow metal around this area. Having said that though, for Gold to build any kind of momentum - even for the near term - we first need to see a break above $1,198 and the 200-period moving average found there. Should this happen then Gold looks good for a move towards the $1,205 peak. Oil was unable to stage a meaningful recovery yesterday and failed to overcome $68.50. However, there are worries that Hurricane Florence may disrupt supply and this would propel prices higher again.
Stocks ended the day slightly above water in Europe as the Brexit-related headlines improved risk sentiment which helped the US markets limit their losses to less than a percent. However, Trump's agenda to intensify pressures on China and include other countries in his list of targets doesn't allow investors to calm down and this morning futures on either side of the pond indicate only marginal gains. Nevertheless, as long as we don't receive any fresh, bearish news from this front equities will try to build some momentum so we may see a positive day unfold today.
MARKET EVENTS TO WATCH
- UK Unemployment Rate - 12.30pm
- Euro-Zone ZEW Survey - 1pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Market Research