European Open Preview – Stocks and Currencies of Commodities Encourage Trade Optimism

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European Open Preview – Inventories and Commodity Currencies Boost Trade Progress

Posted on 18 February 2019 at 08h48 GMTMarios Hadjikyriacos, Office of Investment Research, XM

  • Confidence in risk is boosted by signs of progress in US-China talks, though auto pricing risk casts a shadow
  • ECB Bank sends euro down, but single currency bounces
  • The United States and Canada are closed for today, attention could be focused on Brexit

Inventories gather alongside commodity currencies in the midst of commercial "progress"

Encouraging headlines surrounding the US-China trade talks added to the overall risk sentiment on Friday after the conclusion of the high-level talks in Beijing. Both sides hoped for an agreement. President Trump said the negotiations "are going extremely well" and that the Chinese media have even agreed on a "consensus in principle". Discussions will continue in Washington this week.

As a result, the US stock markets soared, with the S & P 500 (+ 1.09%) and Dow Jones (+ 1.74%) indexes reaching their highest level in two and a half months, the S & P also erasing its main 200-day moving average. In the foreign exchange market, commodity currencies such as Australian, Kiwi and Loonie outperformed, pulling strength from gains on commodities. At the same time, the dollar has retreated, with the risk of a new escalation appearing to divert safe havens from the global reserve currency.

But overall, there is still a bit of caution. While the trade headlines are optimistic, there has been no detail on what has been agreed so far, on progress, or anything else on the subject. In addition, overnight reports suggest that the US Department of Commerce has completed its report on auto rates, although the results have not been made public. Do not forget that such reports usually precede the introduction of new rates. Therefore, while the likelihood of an agreement with China seems to be increasing, one may wonder if the EU and its automotive sector could be next on the list, as the White House seems to prefer to negotiate on one front at a time .

Hearts torpedo the euro after hinting that new TLTROs are "possible"

The euro plunged on Friday, following a few remarks by ECB Executive Board member, Mr Coeure, who suggested to policymakers to debate the prospect of a new round of long-term lending. for banks, called TLTRO. This was probably seen as a taste of what will happen at the next ECB meeting in March. On the political front, the announcement that Spain will prepare for early elections in late April probably did not help either.

However, the euro / dollar recovered only the majority of its losses to close the session, which only slightly decreased, mainly because of the weakness of the dollar. In addition to commercial optimism, the Fed's statement, Daly, that it does not expect rate hikes this year has likely also contributed to the dollar's decline. In the future, the pair will probably draw up minutes from the latest Fed and ECB meetings scheduled for Wednesday and Thursday respectively.

Upcoming: Brexit on the horizon as the United States takes leave

The economic calendar is virtually empty Monday.

The US and Canadian markets will remain closed for presidents 'and families' vacations, respectively. This implies that cash can be thinner than usual, so that large movements can occur with little news behind them.

The focus will most likely be on the UK, following reports that some labor lawmakers are planning to separate from the party amid disagreements over how their leadership handles Brexit. In particular, the party repudiates its previous commitment to ask for another referendum.

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