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FXTM: Markets Enter Q2 On a Mellow Note

Lukman Otunuga

FXTM Research Analyst Lukman Otunuga comments on the Greenback cruised into the second quarter of 2017 with style as bulls propelled prices towards 100.60 amid the positive sentiment towards the U.S economy.

Global stocks traded mildly higher on Monday as investors re-accessed both the health of the global economy and major market themes for the second quarter of 2017.

Although a sense of caution lingered across the board ahead of a data-packed week, Asian shares remained resilient with most stocks strolling into the green territory.

While the moderate appetite for risk has supported European equities, gains on Wall Street could be limited if market participants decide to observe the action from a safe distance.

Much attention will be directed towards Donald Trump’s pending meeting with Chinese President Xi Jinping which may be classified as an event risk.

Any complications or tension in the meeting could spark risk aversion consequently pressuring stock markets while boosting attraction for safe-haven assets.

Dollar Index Hovering Around 100.50
The Greenback cruised into the second quarter of 2017 with style as bulls propelled prices towards 100.60 amid the positive sentiment towards the U.S economy.

While the upside momentum that has elevated prices back above the 100.00 psychological level is undeniably impressive, questions may be asked if the rally is sustainable.

The expectations over US rate hike timings have heavily impacted the Dollar with investors desperately seeking further clarity on when rates will be hiked again.

While the Greenback could trade higher from the improving confidence towards the US economy, participants remain somewhat cautious over Trump’s protectionist measures and the threat of his market shaking policies falling below expectations.

When accessing the Dollar from an aerial view, the currency is engaged in a fierce tug of war between the Fed and Trump with no clear winner in sight.

Focusing on today, a positive ISM Manufacturing PMI figure could encourage bullish investors to propel the Dollar Index back above 100.60.

Brexit Season 3: Negotiations Get Under Way
Sterling/Dollar has been erratic, volatile and range bound since the official invocation of Article 50 last week with resistance around 1.2570 and support at 1.2370. Now that the European Union has shared the draft guidelines on the future of the UK relationship after Brexit, investors are now waiting for the next key steps. It seems that the EU may be willing to play hardball in the negotiations, especially after rejecting Theresa May’s Brexit timetable and demanding for a divorce settlement before any future trade deals are discussed.

With uncertainty still a certainty when dealing with Brexit, Sterling may be exposed to further downside shocks. If bears manage to drag the GBPUSD back below 1.2370, a decline towards 1.2200 remains a live possibility.

On the other hand, a breakout above 1.2570 could trigger a further incline towards 1.2650.

Currency spotlight – EURUSD
The EURUSD found itself under fresh selling pressure on Monday as the lingering political uncertainty in Europe created a foundation for sellers to attack.

With optimism diminishing over the ECB raising interest rates fueling the downside momentum, the EURUSD could be poised to descend much lower.

Last week’s rejection from the 1.0900 resistance has given bears the green light to install repeated rounds of selling. From a technical standpoint, previous support around 1.0700 could transform into a dynamic resistance that encourages a decline towards 1.0500.