Market sentiment starts a new trading week under pressure
The US dollar started the trading week on the front foot. Investors reacted to news of fresh Covid-related restrictions in China by seeking refuge in assets such as treasuries and, of course, the dollar. The news arriving from China is worrying investors and is stopping the recent rise in risk appetite in the financial markets. Hopes that China would be fully open for business soon were, alongside the believe that peak inflation has passed, supportive of the recent rebound in risk related assets such as stocks. On the other hand, that positivity saw the greenback, at some point, drop by as much as 5% compared to where it was at the beginning of the month. However, the mood appears to be changing again, with recent hints from Fed officials that the rate hiking cycle still has some way to go, and China reinstating Covid-related restrictions. The result is a clear drop in risk appetite, which creates scope for further dollar gains.
Ricardo Evangelista – Senior Analyst, ActivTrades
European benchmarks opened mixed on Monday, continuing the trend started by Asian shares overnight, as market sentiment starts a new trading week under pressure.
Risk appetite is on the downside this morning as investors digested the latest virus development from China where rising Covid deaths are sparking worries of tighter restrictions in the region.
Higher bond yields, an increasing US dollar and drifting oil prices aren’t offering a good set-up for stock traders and clearly highlight “seeking for safety” portfolio moves so far.
Without any major macro news in sight, apart maybe from the US Chicago National Activity Index, today’s session is likely to remain technical rather than fundamental for traders. The Stoxx-50 index still trades inside its 90-point wide short-term range, inside a bigger bullish channel pattern, while the DMI indicator shows a decreasing bullish pressure inside a lowering directional movement. Short-term traders may seize the opportunity to trade inside the range, while long-term investors are likely to wait for a break-out of any of those bounds before orienting their portfolio in a much clearer direction, ahead of this week’s FOMC minutes of the last meeting.
Pierre Veyret– Technical analyst, ActivTrades
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