Amid rising geopolitical tensions from multiple fronts, Asian and European equities are seeing mixed price action with dovish bias. Brexit woes ahead of deadline continue to add bearish bias to investor sentiment. Macro data updates eyed for short term directional bias.
Summary: Asian markets today morning saw mixed activity in major stock exchanges despite positive cues from US Wall Street and positive progress in Sino-U.S. trade talks. US Wall Street on Friday saw S&P 500 index close positive for seventh consecutive trading session, longest streak of positive closing since October 2017. Trade talks between China & U.S. also ended on positive note with headlines from China hinting that progress has been made on key issues with topics such as technology transfer, protection of intellectual property rights, non-tariff measures, services and agriculture being address during the three day session. However, caution ahead of upcoming Brexit deadline and possibility of dovish US earnings season the month ahead capped gains in Asian market hours. Brexit woes and mixed cues from Asian markets caused sentiment in European markets to take dovish turn influencing major indices and stocks across key European markets to open in red. Further, loss in technology and automobile sector shares aggravated bearish sentiment resulting in European market suffering steep downward decline. Forex market is seeing subdued price action as risk appetite remains high compared to equity market on Sino-U.S. trade optimism.
Precious Metals: Both gold and silver trade positive in the global market on prevalent risk averse investor sentiment. Cautious owing to political tensions in Libya, Brexit deadlock with deadline nearby and weaker US dollar in the broad market underpin precious metal bulls. Despite Friday’s gains in USD owing to upbeat NFP data, mixed cues in international market and traders’ preference for major safe haven assets capped gains in US Dollar.
Crude Oil: Crude oil is trading positive in the global market today with price per barrel crossing $63 handle for WTI & $71 handle for Brent in spot market. Both major crude oil benchmarks have scaled new 2019 highs as Libyan crisis continues to escalate. Given the fact that OPEC is likely to continue enforcing their production and supply cut agreement at least till late May, a disruption of output from Libya which produces over 1 million barrel per day could greatly affect global supply dynamics in favor of Crude oil bulls which suggests possibility for further upside price action in near future.
USD/JPY: The pair remains trapped in a range bound price action in lower half of 111 handle. While mixed cues in Asian market with positive bias stemming from positive Wall Street closing and upbeat US NFP data underpinned some level of gains for USD in Asian market hours, the pair lost all gains towards end of Asian trading session. While upbeat NFP data eased concerns of recession in US, caution surrounding Sino-U.S. trade talks, Brexit stalemate with deadline less than a week ahead safe haven appetite is high the market and underpinned JPY bulls resulting in USD losing early gains and trading range bound near intra-day lows.
On The Lookout: The main focus of investors is now on European central bank meeting later this week ahead headlines pertaining to Brexit progress in UK. While headlines hint at cross party talks, no conclusion on how to move forward has been agreed yet despite deadline for Brexit approaching closed with each passing day. While Sino-U.S. trade talks have made some progress, as per headlines further talks will take place between delegates of both nations before presidential summit which still remains at least 3-4 weeks away, while Brexit has less than a week left ahead of deadline. While headlines stated that PM May has requested for extension till June 30th, if headlines from recent past are taken into consideration, unless the request for extension is made for longer duration of 9 months or more, Brexit extension is unlikely to be granted. But headlines hint at key emergency summit between EU & UK ahead of upcoming Brexit deadline during which investors hope key decisions on Brexit could be decided. In immediate future, investors focus on macro data updates for short term trading cues and profit opportunities. US calendar will see release of factory orders data while Canadian calendar will see release of Housing starts and building permits data and later in the Pacific-Asian market hours Australian calendar will see release of Westpac consumer sentiment and home loan data which will influence some level of volatility ahead of this week’s key events.
Trading Perspective: While Asian and European markets saw price action with severe bearish bias, chances are Wall Street could see comparatively positive price action. The hope for positive price action stems from Friday’s NFP data update which eased away concerns of recession in US and Sino-U.S. trade talks updates which saw favourable progress as per headlines. But US benchmark index futures trading in the international market are seeing sharp declines suggesting possibility of mixed activity in US Wall Street.
EUR/USD: The pair saw steady upward price action since trading started for the week supported by optimism surrounding Sino-U.S. trade talks. But Brexit woes kept gains in check in early trading session. However, weak USD helped the pair maintain steady upward price action which got a solid boost on better than expected German trade balance update. Investors now await US factory orders data for short term trading cues and to see if EURO can hold out near intra-day highs or fall back to intra-day low similar to Friday. A steady hold over today’s gains will give EURO bulls the strength needed to push for rally towards 1.13 handle.
GBP/USD: Post a slight upward move in early trading session, the GBPUSD pair has maintained range bound price action across both Asian and European market hours as Brexit woes cap gains. Brexit progress is currently at a standstill while May continues to sabotage progress with request for shorter extension while EU wants a no-deal exit or longer extensions. Bulls remain wary of Brexit proceedings and this has kept gains in check to great extent. While short term headlines and macro data updates may influence some level of volatility, only a solid progress on Key Brexit issues and decisions will help British Pound gain a bullish breakout. Until such an outcome becomes reality, Sterling will see range bound action near 1.30 handle the week ahead.
USD/CAD: Post Friday’s dovish closing, the pair opened with a slight upward move near 1.338 handle in early Pacific-Asian market hours. The pair remained range bound near said levels across Asian and better part of European market hours. But influence stemming from Libyan crisis and OPEC supply cut enforcement boosted Crude oil bulls pushing price to new 2019 lows. This caused the pair to lose early gains and fall towards mid-1.33 handle ahead of American market hours. But downside remains limited owing to risk averse investor sentiment. Investors now await macro data updates for short term profit opportunities and trading cues. A dovish US macro data outcome along with positive Canadian macro data outcome will help CAD move below 1.3350 handle which will give CAD bulls control of price action in immediate and near future trading sessions.