Stocks manages to steer through Brussels explosions
Risk aversion in Asia and a terror-attack in Brussels were apparently not significant enough for equities to drop in Europe and the US (at time of writing). Even in Belgium, where several explosions spread fear into the Euro zone, the BEL20 index posted a small gain. Upbeat regional and composite PMI and ZEW figures from the Euro zone triggered optimism on the condition for the European outlook. From UK, key CPI & PPI figures were more or less a non-event. FX markets were sideways trading with a bias towards a weaker US Dollar. In commodities, oil is pushing higher, eying the highs from late November 2015 at $43.27 /barrel.
With the CAD being historically highly correlated with oil, and the black gold has been on a bull run since the middle of February, USD/CAD has come off and closed below the 200-DMA last week, finding support at the 61.8% retracement level in the wave from May 2015 to 2016 highs at 1.2978. Downtrend is still intact and oil is pushing higher, so we would sell on rallies in this pair as the down-trend is still intact. Next support at last week lows at 1.2920-area before 1.2830 area.
UK Headline CPI and PPI came out slightly lower than expectations, but the Core PPI was slightly elevated. The UK House Price Index at 7.9% beat expectations at 6.9%. Despite the mixed figures, a report from Moody’s stole attention warning that a potential Brexit would be a costly affair for the UK economy, which sent the Sterling on the offer. Cable is down around 170 pips since the opening and is back below the 50-DMA. As mentioned previously, the GBP will be subject to increasing volatility as we get closer to the 23rd of June where the referendum on the EU membership will take place. For now, we recommend being cautiously bearish in GBP-pairs.
Get market updates on your email by subscribing to T1 MarketScope weekly newsletter