The dollar pushed broadly higher against the other major currencies on Monday, as Friday’s upeat U.S. retail sales data continued to support and as comments by Japanese Prime Minster Shinzo Abe still weighed on the yen.
Trading volumes were expected to remain quiet on Monday with U.S. markets closed in observance of Presidents' Day.
Meanwhile, the yen weakened after Japanese Prime Minister Shinzo Abe told parliament that "excessive currency volatility is undesirable," and said Tokyo will take appropriate action in the exchange rate market as needed. Separately, data earlier showed that Japan’s gross domestic product contracted by an annualized 1.4% in the three months to December, worse than expectations for a contraction of 1.2%, following a revised 1.3% expansion in the second quarter.
Also Monday, data showed that China’s exports fell 11.2% in January from the same month a year earlier, following a drop of 1.4% in December. Economists had forecast a far more modest decline of 1.9%. Imports dropped 18.8% last month after falling 7.6% in December, compared to expectations for a 0.8% decrease.
Today the U.K. is to publish data on consumer inflation; in the euro zone, the ZEW Institute is to report on German economic sentiment; Canada is to publish data on manufacturing sales; and the U.S. is to release a report manufacturing activity in the New York region.
Yesterday as Draghi presented his remarks, the euro fell and bank stocks initially declined before recovering. The Euro Stoxx Banks Index rose 3.6% and the single currency slid 1.1%.
Attempting to draw a line under the past week’s turmoil, which saw one day stock price declines of more than 10% at both Deutsche Bank AG (DE:DBKGn) and Societe Generale (PA:SOGN) SA, Draghi underlined the ECB’s efforts since 2014 to repair confidence in the region’s banking sector.
“The fall in bank equity prices was amplified by perceptions that banks may have to do more to adjust their business models to the lower growth/lower interest-rate environment and to the strengthened international regulatory framework that has been put in place since the crisis,” he said. However, Draghi also added euro-area banks are in a “good position” to bring down non-performing loans in an orderly manner over the next few years, and added that they won’t face additional legal capital requirements. He dismissed a report on Monday that the central bank is discussing including asset-backed securities based on Italian non-performing loans in its asset-purchase program.
Today investors’ focus will be on the ZEW Institute report on German economic sentiment, for further information on the strength of the EU economy.
Pivot: 1.121Support: 1.112 1.1085 1.104Resistance: 1.121 1.126 1.13Scenario 1: short positions below 1.1210 with targets @ 1.1120 & 1.1085 in extension.Scenario 2: above 1.1210 look for further upside with 1.1260 & 1.1300 as targets.Comment: the RSI is mixed to bearish.
Gold
Gold kicked off the week with hefty losses on Monday, as investors regained their bullishness and moved back into riskier assets as market sentiment improves.
Prices of the yellow metal soared to a one-year high of $1,263 last Thursday, boosted by a flight to safety. Futures jumped 7.02%, last week, the best weekly performance since December 2008.
Gold has been well-supported in recent weeks amid indications global economic and financial headwinds could make it tough for the Federal Reserve to raise interest rates as much as it would like this year. Market participants have all but priced out any rate hikes this year, while the Fed is anticipating four more. A gradual path to higher rates is seen as less of a threat to gold prices than a swift series of increases.
Gold is up nearly 14% so far this year as investors seek safe havens in the face of mounting instability in other financial markets.
In the week ahead, market players will be turning their attention to Wednesday’s minutes of the Fed’s latest policy meeting and to U.S. data on inflation, for further clues on the strength of the economy.
Pivot: 1170Support: 1170 1142 1088Resistance: 1278 1300 1345Scenario 1: long positions above 1170 with targets @ 1278 & 1300 in extension.Scenario 2: below 1170 look for further downside with 1142 & 1088 as targets.Comment: the RSI is supported by a bullish trend line.
WTI Oil
Oil prices were steady on Monday, holding on to last week's gains on speculation that OPEC might agree to cut production to reduce a supply glut that has pushed prices to the lowest in over a decade.
Yesterday Nigeria's oil minister told the mood inside OPEC was shifting to a growing consensus that a decision must be reached on how to prop up prices. Furthermore non-OPEC member Russia said it was in talks on coordinated output cuts with individual OPEC members, mainly Venezuela, but not with the organization itself. And also last week, the United Arab Emirates' energy minister said OPEC was willing to cooperate on an output cut. However, many analysts, including the International Energy Agency, are still skeptical OPEC will cut a deal with other producers to reign in ballooning output.
Inafct Iran is exporting 1.3 million barrels per day of crude, would load 4 million barrels of crude on tankers destined for Europe in the coming 24 hours, and will be pumping 1.5 million bpd by the start of the next Iranian year on March 20.
In the week ahead investors will be watching Wednesday API weekly report on U.S. oil supplies and Thursday EIA weekly report on oil supplies.
Pivot: 29.5 Support: 29.5 28.3 26.95 Resistance: 31.4 32.5 33.6 Scenario 1: long positions above 29.50 with targets @ 31.40 & 32.50 in extension. Scenario 2: below 29.50 look for further downside with 28.30 & 26.95 as targets. Comment: the RSI is bullish and calls for further upside.