We had a relatively muted start to the trading week as investors in both the UK and the US enjoyed long weekends, stock markets had a mixed day and the dollar gained back some of the lost ground from Friday. The main focus of the day was on President Trump’s trip to Japan and any updates on the US’s global trade policy and the fallout from EU elections. Once again the market received mixed messages from the President as he indicated that talks were going well with Japan but then advised that tariffs on Chinese goods could increase even further. Euro markets gained some ground as results came through largely as expected and fears of strong anti-EU parties gaining too much control receded, although news later in the day that Italy could be facing a $4bio fine from the EU did hamper rallies. Oil gained back some more of last weeks losses but still remains at more muted levels, WTI at $59 and Brent near $70.
Markets return to full capacity today and investors will be looking very closely at the reaction to the Geo-Political issues that played out over the weekend. Relief rallies in both the Euro and the Pound could prove to be very short lived as the reality of the economic situations that both trading entities find themselves in may lead to some significant downside corrections. The Euro elections are out of the way but we’re now looking for new leaders within the block and given the hardening view points between member nations and indeed parties within the member nations then there is a high probability of more political instability ahead, something that is never good for a currency. Issues in Italy and Greece will probably grab the short term headlines with neither situation Euro positive. The pound has remained resilient over the last few days as PM May’s demise was well documented but expect further volatility and downside potential as the race for the top spot and with it control of the (poisoned) chalice of Brexit heats up and chances of a hard Brexit increase.
Looking at the economic calendar for the day ahead and it’s once again very quiet in terms of tier 1 data releases, so expect traders to continue to monitor the news wires for updates on trade and geo-political issues as the day progresses.