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Volatility likely to be low due to US holiday

European stock markets rallied yesterday as Christine Lagarde, the head of the IMF, was nominated as the next head of the European Central Bank. 

Ms Lagarde is seen as a dove, and the nomination gave equity markets a boost. The FTSE 100 and the DAX both hit 10-month highs which gives an indication of the bullish sentiment.

US equity markets had a stellar run too, as the S&P 500 and Dow Jones closed at record highs. The slight improvement in US-China trade relations has been the driver of US equity markets. Yesterday, the US announced a series of economic announcements, and by-and-large the updates were negative. In recent months, there has been a lot of speculation that the Federal Reserve will loosen monetary policy later this year, and some traders view the disappointing economic releases as a justification for believing the Fed will cut rates, and that added to the bullish move.  

The ADP employment report for June was 102,000, which majorly undershot the 140,000 consensus estimate. The jobless claims report dipped to 221,000 from 229,000. President Trump has been working hard to rebalance the US’s trading relationship with the rest of the world, but the latest report showed the trade deficit widened in May to $55.5 billion. China and the EU remain the largest trade deficits for the US, and trade tensions are likely to resurface down the line as there is still is work to be done as far as Mr Trump is concerned.

Asian equity markets were mixed overnight. Larry Kudlow, economic advisor to the Trump administration, said that face-to-face trade talks with China will begin ‘soon’. The New York Stock Exchange will remain closed today as the US celebrates Independence Day.

Oil saw a jump in volatility when the Energy Information Administration (EIA) report was released yesterday. The update showed that US oil and gasoline stockpiles dropped by 1.08 million barrels and 1.58 million barrels respectively. On Tuesday, the American Petroleum Institute revealed that oil inventories declined by 5 million barrels, and the falling stockpiles are propping up the oil market.    

Gold had a subdued session, partially because the US dollar was largely unchanged on the day, but also because dealers were in risk-on mode. Gold is back above the $1,400 mark, and if it can hold above that level, the wider bullish move should continue. The feelgood factor in equity markets has also played out in the metals market, as platinum and palladium rallied, and the latter hit its highest level since March, and it isn’t too far away from its all-time high.

Eurozone retail sales will be released at 10am (UK time), and on a monthly basis the reading is expected to be 0.3%, while would be a big improvement on the 0.4% that was registered in April.        

EUR/USD – has been largely pushing higher since late May, and a break above 1.1400 might bring 1.1448 into play. A move back below 1.1200 might pave the way for the 1.1110 area to be retested.

GBP/USD – has been driving lower since mid-March, and if the bearish move continues it might encounter support at 1.2476 region. The 1.2800 area might act as resistance.

EUR/GBP – has rebounded for over one month, and if it holds above 0.8800, it might bring 0.9000 into play. A move to the downside might bring the 200-day moving average at 0.8782 into play. 

USD/JPY – has been in a down trend since late April, and if the bearish move continues it might target the 106.00 mark. Resistance might be found at the 50-day moving average at 109.39.


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