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Markets Recover on Italian Hopes, Dollar Falls

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Equities

Global stocks rose on Wednesday as Italian leaders move to end the political turmoil. The drop in the Italian bond yields showed that investors are back in risk-on trading mode. FTSE MIB ended a five-day losing streak and rose more than three percent from its ten-month low. The optimism in the European stock market continued to the US open. The Dow Jones Industrial Average and the S&P500 rose by 1.3 percent to cover most of Tuesday’s losses. However, US stocks may come under pressure again as President Trump is set to impose metal tariffs on Canada, Mexico, and the European Union today.

USD

The dollar index fell from a six-month high as the positive sentiment from Italy forced investors to take profits on their long-dollar positions. Moreover, the weaker-than-expected economic reports from the United States yesterday pressured the greenback. The ADP Nonfarm Employment Change for May came out at 178K versus an expectation of 186K, and the prior reading was revised lower to 163K from 204K. Also, the preliminary release for the GDP of the first quarter was at 2.2% versus an expectation of 2.3%. As for today, investors will be waiting for the Core PCE Price index, Initial Jobless Claims, and Pending Home Sales.

EUR

The Euro jumped-off an eleven-month low against the US dollar on Italian hopes and better economic reports from Germany and Spain. EURUSD posted a low of $1.1510 as the political turbulence in Italy weighed on investor’s appetite. However, the Euro recovered most of its Tuesday’s losses as Italian leaders took steps to end the turbulence. Moreover, an upbeat Consumer Price Index from Spain and Germany signaled that the Eurozone economy might pick up in the second quarter and the inflation numbers could meet the targets of the European Central Bank. On the other hand, the single currency is more than three percent down in May as we approach the month-end today. May is the proven to be the worst month for the Euro with the ten-year average of -1.95%. The Eurozone Consumer Price Index is due today.

CAD

The Canadian Dollar strengthened against the US dollar to post the strongest single-day gains since March 21st. The Bank of Canada held interest rates unchanged at 1.25%. However, the changes to the BOC statement boosted the Loonie. The BOC used “Gradual approach” to describe interest rate hikes instead of “Higher interest rates will be warranted over time." The Federal Reserve used the same statement to indicate that they will raise rates every second meeting. As a result, the chance of a rate hike in July jumped from 50% to 79.5%. The GDP of the first quarter is due today.

Gold

Gold prices edged higher on a weaker dollar and the expected rise in trade tensions after Trump’s metals tariffs announcement today. The precious metal is close to post a two-week high which is also the 200-day simple moving average. Gold traders remain cautious ahead of the US job report tomorrow.

Oil

Oil prices rose for the second consecutive day to recover around %40 of its last swing down. Oil markets will remain vulnerable to the expectations of a rise in the output of the top three oil producers. The American Petroleum Institute (API) reported yesterday a rise in the US crude stockpiles by 1 million barrels last week to a total of 434.9 million barrels. The official number from the Energy Information Administration (EIA) is due today.

Major Economic Events

GMT Country Event Expectation Previous
9:00 EU CPI (YoY) (May)  1.6% 1.3%
9:00 EU Core CPI (YoY) 1.0% 0.7%
12:30 US Core PCE Price Index (YoY) (Apr) 1.8% 1.9%
12:30 US Initial Jobless Claims 234 234
12:30 CA GDP (QoQ) (Q1) 1.8% 1.7%
14:00 US Pending Home Sales (MoM) (Apr) 1.1% 0.4%
15:00 US Crude Oil Inventories 2.214 5.778


Disclaimer

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