Financial markets have commenced the trading week on a positive note as investors welcomed encouraging developments in Europe and rebounding oil prices.
Equities across the world bounced back to life following the dramatic selloff last Friday as optimism over Italy’s budget deal with the EU and approval of the Brexit deal in Europe stimulated risk sentiment. A small selection of emerging market currencies were buoyed by the improving market mood with the Turkish Lira, Indonesian Rupiah and Chinese Yuan falling into the category. With appetite for risk possibly taking a turn for the better as investors embrace the rally in tech shares and crude oil, EM currencies could remain supported ahead of the G20 summit later this week.
In the currency markets, the Chinese Yuan fought back against the Dollar as investors closely monitored US-China trade relations. While the near-term outlook for the Yuan points to further upside, it must be kept in mind that the local currency remains in the passenger seat when pitted against the Dollar. With the Greenback supported by confidence over the US economy, rate hike expectations and safe-haven demand, the USDCNY has the potential to edge higher in the medium to longer term. Will the combination of trade tensions and divergence in U.S and Chinese monetary policy pave a clear path towards the psychological 7.00 level? This is a question on the mind of many investors.
Pound unamused by EU’s Brexit deal approval
The Pound was clearly unfazed and uninterested on Monday despite EU leaders approving the Brexit divorce deal over the weekend.
Investors remain hesitant to hold the Pound, especially when considering how the deal needs to pass through Parliament. Market pessimism over any deal Theresa May brings forward being squarely rejected by Parliament is likely to keep Sterling depressed and unloved. With fears over the UK possibly crashing out of the EU with no deal in place haunting investor attraction towards the Pound, the outlook remains bearish. Looking at the technical picture, the GBPUSD bears are eyeing 1.2760 in the near term.
Will Gold surprise markets this week?
Gold experienced a steep selloff on Monday thanks to an appreciating US Dollar. The improving market mood and renewed appetite for risk dented appetite for the safe-haven asset with prices sinking towards $1222 as of writing.
With the Dollar back on the throne and encouraging developments in Europe boosting investor confidence, Gold could be in trouble this week. However, the yellow metal may be provided an excellent opportunity to shine this week if the outcome of the G20 summit fails to meet market expectations.
Investors will be keeping a very close eye to see whether the United States and China will be able to find some middle ground on trade at the summit. While a breakthrough deal seems highly unlikely, any signs of the two sides expressing interest for further discussions could ease trade tensions. However, if talks descend into arguments and trade relations between the two nations deteriorate further, Gold could shine with intensity.
Looking at the technical picture, bears remain in some degree of control below the $1228 resistance level. Sustained weakness below this point could open a path towards $1218. For bulls to jump back into the game, a solid breakout and daily close above $1228 needs to be achieved.