Financial market research and analysis

As forex markets open on Sunday, there has so far been no reaction to significant progress in talks between Italy’s 2 anti-establishment party leaders. The leader of the Eurosceptic party- 5 Star Movement, Luigi Di Maio and far right leader of the League, Matteo Salvini, are attempting to create a functioning coalition government to fill the political vacuum which Italy has experienced since the Italian election in March. The popularist parties are expected to announce their decision on Monday. Should their negotiations, be going well, as reports suggest, and they agree upon a Prime Minister who is accepted by the Italian President, they will be the first anti-establishment government in Italy and in Western Europe.

There is the clear positive to an end of over 2 months of political gridlock; however, there is a glaring negative in that such a coalition could impact on Italy’s relationship with the European Union, potentially throwing Italy’s slowly recovering economy into disarray. Anticipated measures include renegotiations of EU accords with a tougher stance, although a full-blown withdrawal from the European Union does not appear to be on the cards, which goes some way to explaining the inexistent response from the euro. Meanwhile, a weaker dollar is also keeping the euro buoyant.

Dollar in correction mode

Despite hitting a four and a half month high during the previous week, the dollar was looking tired by the end and actually finished the week flat versus most of its peers. A slightly soft CPI reading and Fed Chair Jerome Powell sticking to the script sent the dollar into correction mode, which it is seen extending into the new week. External factors could reignite the dollar rally in the coming days, especially as CPI and GDP data from both Japan and the eurozone are expected to produce weak readings.

FTSE’s to open lower on stronger pound

The BoE didn’t raise rates on Thursday, sending the pound lower. The weaker pound lifted the FTSE which hit 7728, its highest level since January. The currency correlation between the FTSE and the pound has been notably strong over the last week. Given the pound is already up 0.2% in early trade, the FTSE is expected to struggle on the open, lagging behind its European peers.

More upside for oil?

After the solid rally in WTI and Brent last week, traders will be looking out across this week wondering whether there is still further upside to go? Whilst the Iran issue and Middle Eastern tensions have certainly prompted the most recent move higher, attention is expected to swing back to simple fundamentals of supply and demand. OPEC tightening, fresh sanctions on Iran and ongoing issues in Venezuela are meaning that supply has been reduced, whilst the strengthening global economy means that demand is now much stronger.

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