- Safe haven assets lost ground on Monday amid improving risk sentiment
- GBP/USD may slide further as European traders return to their desks, Brexit story and the prospect of low interest rates
- A recovery in crude oil prices helped commodity currencies to extend gains
- New Zealand dollar may test the key 0.6650-0.6670 resistance area with next resistance at 0.69
- Preliminary PMI data for February printed lower than In January and there is a strong likelihood that the ECB may intervene at next meeting on March 10 by cutting its deposit rate further into negative territory
The pound sterling fell the most against the US dollar as Brexit discussions took the front stage over the weekend. Boris Johnson, London’s mayor, took the opposite line to that of David Cameron in supporting the UK leaving Europe. GBP/USD dropped almost 1% to 1.4250 in early Asian session before continuing sliding further as European traders return to their desks. Over the last few weeks, the highly sensitive Brexit story and the prospect of low interest rates have weighed on the pound.
A recovery in crude oil prices helped commodity currencies to extend gains. Among the G10 currencies, the New Zealand dollar gained the most against the greenback, rising 0.40% $to 0.6660, as the global risk sentiment keeps improving. In the medium-term, NZD/USD is trading sideways within the 0.6550-0.6750 range; however the pair is currently testing the key 0.6650-0.6670 resistance area, which corresponds to the point of convergence of a few indicators (50dma, 200dma and the upper bound of the multiyear declining channel). A break of this area to the upside would send a strong bullish signal. The next resistance can be found at 0.69 (psychological level and high from October 15th.
In the equity market, Asian regional markets started the week on a firmer footing as mainland Chinese equities were buoyed by commodity gains and the announcement that Liu Shiyu has taken over as Chairman of China Securities Regulatory Commission. Iron ore for delivery at the port of Qingdao rose 16% over the month of February and almost 3% since last Thursday, reaching $48 a metric ton on Monday. The Shanghai Composite settled up 2.35%, while the tech-heavy Shenzhen Composite rose 2.04%. In Hong Kong, the Hang Seng jumped 0.88%, in Singapore the STI edged up 0.15% and in Australia the ASX sore 0.98%. In Europe, equity futures were blinking green across the screen with futures on the Footsie up 0.96%. In Germany futures were up 1.30%, while in Switzerland SMI futures were up 0.94%.
Safe haven assets lost ground on Monday amid improving risk sentiment. Gold fell 1.30% and Silver dropped 1.19%. The Swiss franc and the Japanese yen extended losses against the greenback, down 0.20% and 0.30% respectively, as investors favoured riskier assets. The recovery in US treasury yields should continue to support dollar bulls.
***Yann Quelenn, market analyst: “Soft Eurozone PMI data pressure ECB: The preliminary figures of the Markit Eurozone PMI for February have been released. Data printed lower than In January. Manufacturing PMI dropped to 51 from 52.3. Yet, data is still lying above the 50 mark, which indicates growth. A lower figure, on the other hand, shows recession.
The global economic slowdown keeps going, stocks markets have sharply declined since the beginning of the year. For example, the DAX has lost more than 10% during this period. Oil prices are still very low with WTI trading around $30 a barrel and there are growing uncertainties about the true state of the Chinese Economy.
We believe that deflation risk is set to continue increasing in this environment. As a result there is a strong likelihood that the ECB may intervene further at next meeting on March 10 by cutting its deposit rate further into negative territory.”***
Today traders will be watching retail sales from Germany; market PMI from Germany, France, the euro zone and the US; money supply, domestic sight deposits and producer and import price index from Switzerland.