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EUR bid as ECB buys utility notes
Risk sentiment improves across the board on dovish Federal Reserve expectations and firmer oil and commodity prices.
Japanese stocks gained after Q1 GDP was revised up to 1.9%q/q annualized, although the trade surplus missed market estimates by a significant 24% in April. In China, exports declined by another 4.1%y/y in May, whereas the growth forecast was kept unchanged at 6.8%.
The World Bank revised the global growth forecast down to 2.4% from 2.9%. The gloomy global macro picture, combined with the weak trade data from Japan and China, kept the appetite contained in Asian equity markets. This could also hold certain stock investors back from jumping on the back of a bull, perhaps for not too long, though.
Global stocks trade near 2016 highs on the anticipation of a longer period of cheap liquidity across the globe.
The Fed is expected to sit on its hands at next week’s monetary policy meeting. The earliest move from the Fed is seen by September. The US dollar remains offered against all of its G10 peers and a clear majority of emerging market currencies.
In the UK, the market remains seller on rallies in FTSE stocks, despite the encouraging recovery in oil and commodity prices. All sectors started the day in the red. Financials and communication sectors lead early losses in London. The FTSE could retrace toward its 200-hour moving average, 6245p, as Brexit risks prevail. A sustainable bearish reversal in sentiment could pave the way toward the 200-day moving average, 6145p, as we move toward the June 23rd referendum.
The European Central Bank’s corporate bond-buying program starts today. The ECB announced to begin purchasing utility notes to boost growth and inflation in the Eurozone. The Eurozone’s investment grade bonds’ average yield fell to 1% on Monday. Companies that could benefit from the ECB’s bond buying program have little excuse for not raising debt.
Euro traders seem little interested in building fresh euro-short positions, however, Fed-hawks are gradually removing their USD-longs off the table. On the other hand, the ultra-expansive ECB policy appears to be mostly priced in. The wait-and-see mode in the dovish euro camp could pave the way for a further appreciation in the single currency.
The EURUSD consolidates above the 50-hour moving average, 1.1355. Offers abound pre-1.14, if broken should encourage an extension toward the 1.15 mark, before a potential re-test of 1.1616, May 2nd high.
The USDJPY finds buyers sub-107.00, although the latest appetite in the yen hasn’t fully faded yet. Although, low US yields could prevent the pair from a noteworthy recovery toward the 110 mark for the moment.
WTI cleared resistance at $50 and is set to extend gains on a cheaper US dollar. Oil recovered 90% since it hit a year low in February. News that Nigeria’s crude output fell to the lowest levels since 1994 is expected to lend further support throughout the day.