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EUR/USD and GBP/USD Rally on Positive Market Sentiment

EUR/USD and GBP/USD Rally on Positive Market Sentiment

US fiscal stimulus updates, market sentiment, Brexit updates, and more.

The Japanese Producers Price Index (PPI) year on year of -0.8% came in lower than expected of -0.5% and even lower than the prior read of -0.6%. The PPI measures inflation in terms of costs for producers’ products, therefore it gives a hint about the consumer price index or inflation figures progress in the country.

Equities
Asian stock market edged higher on Monday as the Chinese president Xi could unveil in his visit this week to Shenzhen plans to further open of the economy to foreign investment, while the US stock market closed last week in the green as traders were optimistic about a possible fiscal stimulus deal could be achieved this week.

The US administration suggested a makeshift solution of using some leftover funds from the unused Paycheck protection program. Talks between the two main parties in the US have failed so far to secure a fiscal stimulus deal to help the US economy to recover from the shutdowns caused by the surge in coronavirus infections. Meanwhile, Federal reserve’s members pointed out the need for federal aid as the economic recovery is losing momentum.

Stock Market

Change %

S&P 500

+0.5%

Dow Jones

+0.1%

NASDQ

+1.2%

Japan 225

-0.5%

DAX 30

-0.3%

FTSE 100

-0.1%

CAC 40

-0.01%

Currencies

Investors' optimism of a possible stimulus agreement led the US Dollar index to invalidate the inverted head and shoulders signal and to trade on Friday below the neckline hinting towards 91.78. A daily close below that level could send the price even lower towards 90.36.

The EUR/USD closed on Friday above the 50-day moving average, signaling that the price may continue to rally towards 1.1909.

The British pound benefited from a weaker US dollar on Friday and the GBP/USD hit a near five-week high at 1.3049. Investors ignored the UK government threats of leaving the trade deal talks this week if there are no deal signs on the horizon. The UK PM insisted that a deal would be beneficial for both sides however, the UK is also prepared to end the transition period on Australia style terms. A lack of trust between both started after the UK parliament approved the internal market bill that allows the UK government to break some of its commitments in the Brexit treaty.

Commodities

The oil price opened this week’s session with a downward gap on news of ending the Norway strike and restoring the US production after Hurricane Delta. The Brent oil hit a three-week high on Friday $43.54 then retreated and closed in the red. A daily close below $42.50 may send the price even lower towards $39.60. While the US Crude could be on the way for a test of $38.37.

The Gold benefited also from a weaker US dollar and traded above $1,921 for the first time in over two weeks. The price could rally toward $2,015 while above $1,921.

Looking Ahead

Nothing much on the economic calendar today, the market will tune in the ECB Lagarde’s speech at 1:00 PM (GMT) and her Deputy Mr. Guindos at 4:00 PM.

This information/research prepared by Mahmoud Alkudsi does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk. The research provided does not constitute the views of JME Financial Services (Pty)Ltd nor is it an invitation to invest with JME Financial Services (Pty)Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of the date the report is published, the research analyst and his/her spouse and/or relatives who are financially dependent on the research analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). The research analyst in not employed by JME Financial Services (Pty)Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation or particular financial needs before making a commitment to invest. The laws of the Republic of South Africa shall govern any claim relating to or arising from the contents of the information/ research provided.