Overall, the currency market experienced a sell-off during the first part of the session, re-testing the prior support areas that broke during Friday's surge. However, during the European session, the market was able to find a bottom and started to post some small gains against the dollar, as some market participants consider that the current valuation of the dollar does not reflect the current price of crude oil and of the S&P futures. The currency market may face another test during the U.S. open, but the economic release calendar is almost empty, indicating that the trend set during the European trading hours is likely to continue as long as the S&P futures can stay in the green.
The euro (Eur/Usd) bounced from the 1.4350 area during early Asian trade, and continued to decline until the European session opened. For now, the pair is trading within a 20-pip range, just below the neutral pivot point (1.4300). Moreover, on the daily chart, the euro is trading above all the important moving averages, which denotes a bullish outlook.
The pound (Gbp/Usd) is trading between the 20 and the 50-day moving averages, as the pair failed to break anywhere importantly over the last few trading sessions. In Friday trade, the pound managed to break briefly above the 20-day moving average, and at the same time above the 1.6600 level, but could not find the strength to hold above these two price points. Going forward, the pound will need strong momentum in order to be able to break decisively higher.
The aussie (Aud/Usd) was the only pair that opened the Sunday session with a bullish gap, something that has not happened recently. In spite of the selling going on in the currency market during the Asian session, the pair managed to stay above the Sunday open price, which denotes strength. During the European session, the aussie recovered every pip lost earlier in the day.
The cad (Usd/Cad) literary came to a standstill during the first part of the overnight session, as the pair spent an important part of the Asian trading hours within a 5-pip range. Despite this, the cad saw an increase in volume during the London open, but still below the average, which helped the pair follow the other major currencies.
The swissy (Usd/Chf) is currently re-testing the 1.0620 area, the same place where it bottomed over the last few sessions. If crude oil and the S&P futures manage to stay into the green in Monday trade, the pair is likely to top around this value and resume its downtrend.
The yen (Usd/Jpy) showed a lot of strength even from the Asian session, as the Nikkei along with the rest of the Asian markets headed higher at a substantial pace. Currently, the pair is testing the resistance area formed by the 200-day moving average and by a resistance trend-line that holds the pair since early April. In order to break higher, it will need very strong momentum.
European Markets At 10-Month High
Current Futures: Dow +39.00, S&P +3.20, NASDAQ +3.75
Every single European market is heading higher as investors continue to remain bullish on the global recovery. During the overnight hours, the S&P index traded within a tight 4-point range.
Overnight cash markets saw strong trading sessions as investors think that the global economy is heading towards the recovery phase. Every stock market in Europe is trading in the green, with the biggest gains coming from the Eastern markets, followed shortly by the Nordic region. At the same time, the European blue chip companies gained 0.80%, substantially less than the ones in Eastern Europe, which are up approximately 2%.
With today's gains, European stocks reached the highest valuation over the last 10 months of trading. In the U.K. FTSE index, the gains came almost exclusively from the banking and from the commodity producers. Out of the first 20 companies in the U.K. FTSE, ranked by performance, only 4 came from a different sector than the financials or commodity companies. On the other side, drug-makers made a negative contribution to the market, as investors search for companies with potentially higher returns, since drug-makers are seen as cyclical companies. Cyclical companies are companies that tend to beat the market during a downturn, but underperform during a bulls rally.
Earlier in the day, the Asian stock markets closed the cash session on a very strong note, even though the trading volume was light. The Japanese Nikkei closed the day 3.35% higher, while the ASX/S&P index gained 2.98%. Despite this, the Shanghai stock market continues to underperform the mature indexes, posting only a 1.1% gain.
Overnight, the U.K. FTSE added 33.35 points (0.69%) to 4,884.24, while the German Dax rose 24.15 points (0.44%) to 5,486.89.
Crude oil for August delivery was recently trading at $73.80 per barrel, lower by $0.10.
Gold for August delivery was recently trading higher by $0.30 to $ 954.80.