Despite geo-political tensions rising, general market sentiment has been supportive of positive risk and global stocks have traded higher through the first 36 hours of the trading week. It hasn’t been a straight line higher however and stocks and broader markets remain vulnerable to headline news. An example of this was a brief but sharp sell off when Trump suggested his team should look at a further set of tariff’s on $100bln of Chinese imports, while in a twitter rant he called China trade unfair. Then there was some nervousness with sanctions on Russia which obviously had a negative impact on Russian indices. Finally, late yesterday evening on headlines the FBI had raided Trump’s personal lawyer in relation to accusation from Stormy Daniels, there was more selling. The lack of follow through from each of these events however resulted in things returning to normal and equities both in the US and Europe continued higher, interestingly however, some assets associated with risk aversion were in demand with gold, JPY and CHF all stronger on the day.
It was the same story overnight, with all major bourses in the overnight session showing gains. In currency markets US sanctions on Russia hit the rouble hard, but the greenback was not immune to selling and the USD index now trades down almost 1% from Friday’s one month high print. It was a mixed day for the euro, the weaker USD allowed EURUSD to bounce higher from key support, we had flagged this yesterday as a likely outcome, while EURGBP maintained its recent range, failing to press much below .8700 but the rally higher peaked just above .8720 area. We have a very quiet session fundamentally today and with that we’ll be looking towards headlines news and technical levels once again to drive major currency pairs.
EURUSD bounce from support at 1.2220 on Friday has been confirmed with a rally back above 1.2300, however, thus far its failed to press above resistance around 1.2330/40 area. I wouldn’t rule out a bounce as high as 1.2400/1.2420 area but this should limit and further advance higher before we retest lower once more. EURGBP once again looking to press back below .8700, .8660 marks the low area and support which will be a tough level to break below without any real catalyst. GBPUSD has set in 1.4000 area as a base for now, we’ve seen slight drops below but nothing has been sustained and 1.4242 now marks next resistance to a move higher.