An Overly Resurgent Euro Might Mean Trouble for the Stock Market

On Thursday both benchmark grades of oil are trading up amid a decline in US output and uncertainty over the US currency. Brent crude is trading around $48/barrel, while North America’s WTI is a little above $45/barrel. The market’s overall sentiment is pushing oil up, but on Friday investors will be carefully watching the news from Baker Hughes on the change in the number of drilling rigs in the United States in the previous week. Last Friday the number was up, as it has been for 23 straight weeks. Inordinate growth may again depress the oil market, so the news currently has a fairly high value.
Although US oil inventories have shrunk slightly, investors in the Asia-Pacific region reacted fairly positively: the majority of indexes closed up, while the weakening yen drove the Nikkei 225 to a new high.

At the close of trading the Japanese index settled up 0.45%; China’s Shanghai Composite up 0.47%, and South Korea’s KOSPI up 0.55%. Hong Kong’s Hang Seng also reached a high: the index closed up 1.1% because of the rise in technology stocks. However, good news like this most often results in profit taking on Friday, so we just might expect a slight decline at the opening. Relatively strong oil and a weakening yen might again give the Asia-Pacific indexes a small incentive to keep on rising within the trading session.

But if the USD/JPY pair above 112.50 is stimulating the stock market, an overly resurgent euro has begun giving the stock market some trouble: the EUR/USD pair is trading above 1.14, which is making investors show more interest in currency than in company stocks. Despite growth in the financial sector, European indexes – and US indexes, which opened after them – are trading down.

The European composite EURO STOXX 50 fell 1.5%, Germany’s DAX – 1.56%, and France’s CAC 40 - 1.7%. Even Britain’s FTSE 100 dropped 0.6%, although the GBP/USD pair did not strengthen as much as the EUR/USD pair.
The euro just might keep strengthening during the first half of the day on Friday. The target is currently 1.145, but resistance is seen at 1.1425. The pound sterling is also moving up: the GBP/USD pair is headed toward the 1.3 mark with strong resistance at this level.

Yuri Prokudin, Olymp Trade analyst

Olymp Trade Review