Market Brief
Financial markets across the globe continue to recover as EU officials push the UK to activate the exit mechanism as soon as possible in order to start the negotiation over their future relationship. Risk sentiment continued to improve overnight with Asian regional equity markets moving further in positive territory. The Japanese Nikkei rose 1.59%, while the broader Topix index surged 1.88%. Mainland Chinese equities were up 0.17%, while off-shore the Hang Seng was up 0.77%.
In the FX market, the cable consolidated between 1.3288 and 1.3371 as the dust settles somewhat. However, even though the panic reaction is over, the absence of a rally in USD/JPY and continued strength of gold suggest that traders are still on the defensive, waiting for clarity on the Brexit story. The Japanese yen strengthened further during the Asian session with USD/JPY reversing yesterday’s gains. The pair returned to 102.18 in Tokyo after testing the 108.84 level in London yesterday.
The yellow metal rose 0.58% in Tokyo, reaching $1,321.55 in Asia. The safe haven asset is validating a break of the strong $1,307.62 resistance implied by the high of January 22nd. The resistance is now support. Silver rallied strongly as it rose more than 2% to hit $18.17.
In the commodity complex, crude started the week on a solid footing, partially erasing losses from last week. This morning, the West Texas Intermediate traded at around $48 a barrel, slightly below the short-term resistance implied by the high of June 26th at $48.45. Its counterpart from the North Sea, the Brent crude followed a similar pattern and was stuck below the $49 resistance area. We believe that crude oil prices will remain roughly around the $50 dollar mark as demand/supply imbalances persist. In addition, the slowing global economy will likely keep demand for this commodity stable.
In Europe, equities are set to rally further on Wednesday, following the Asian lead. Futures on the Euro Stoxx 600 were up 1.27%, while those on the German DAX were up 1.27%. In Switzerland the SMI was up 0.93% and in France the CAC rose 1.08%. After surging at the opening yesterday, financials struggled to take off as their business outlook remains highly uncertain due to the Brexit.
Today traders will be watching CPI from Spain; mortgage approvals from the UK; consumer confidence from the euro zone; Draghi will speak at an ECB conference; primary budget balance from Brazil; crude oil inventories and pending home sales from the US.
Currency Tech
EUR/USD
R 2: 1.1479
R 1: 1.1428
CURRENT: 1.1069
S 1: 1.0913
S 2: 1.0822
GBP/USD
R 2: 1.3981
R 1: 1.3419
CURRENT: 1.3341
S 1: 1.3121
S 2: 1.3045
USD/JPY
R 2: 111.91
R 1: 106.84
CURRENT: 102.28
S 1: 99.02
S 2: 96.57
USD/CHF
R 2: 1.0328
R 1: 0.9956
CURRENT: 0.9820
S 1: 0.9522
S 2: 0.9444