Euro Session: Improved risk appetite. Futures and the Euro are rising in price.

Ahead of the start of the week’s final trading day, futures in Europe were trading higher after yesterday’s rally as the passage of the US debt bill and dovish comments from Fed officials saw sentiment improve and risk appetite rise. Most Asian markets rose today, with China’s indexes recovering from six-month lows, led by strong growth in technology companies. The positive sentiment and the increasing breadth of US indices spread to global markets.

Futures in Europe reported a second consecutive day of strong gains before the start of trading, hinting at increased optimism among investors such as:
EuroStoxx 50 is up 0.52%
Dax up 0.55%
FTSE up 0.24%

After yesterday’s busy economic calendar in Europe, today market participants will focus on data from the US towards the end of the European session.

Traders await key US non-farm payrolls data /3.30pm/ which is expected to show a slowdown. The report is largely expected to weigh on the Federal Reserve’s stance, as moderation in the pace of hiring would allow the Fed to ease its tightening policy. This sent risk assets higher yesterday, and the dollar fell sharply yesterday, posting its worst day in two months, falling below the 104 level.

The German Dax once again reached the upper end of the wide range, right on the edge of the corrective channel, with increased activity among traders and above-average volumes. Currently, the price has crossed above the 23.6FIBO of the long trend, preparing for an attempt to break out of the channel, but the horizontal resistance around the levels of the previous high and the upper limit of the April range will be a headwind for the price increase.

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The 16K level is still on the radar of investors, with the drop in Euro Zone CPI supporting risk-on sentiment in the old continent, but on the other hand, the continued decline in activity in Germany’s manufacturing sector and the slowing economy are limiting the potential for long-term growth.

I expect continued range trading, with a possible break above 16K possible if US data supports continued growth in US indices, which will ultimately reflect positively on global investor sentiment.

The serious decline in the dollar index yesterday supported the euro, which has been subject to massive sell-offs over the past two weeks, reaching levels just above 200MA. There was strong price action yesterday as the cross managed to wipe out the entire weekly decline, breaking through the corrective channel, crossing above 61.8FIBO.

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The DeMarker Oscilltor is heading north from oversold territory, with a slight improvement in OBV.

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If today’s NFP release supports the Fed’s dovish stance, this will lead to continued declines in the dollar and growth in the EUR/USD cross, with the 1.08 levels around the 50FIBO a potential target in today’s session. On the other hand, to validate the end of the short impulse, the price must retest the breakout, which could lead to a slight correction to the 1.074 levels.

There is currently a serious improvement in attitudes and risk appetite, as I expect a positive start to the session and continued recovery of the indices and the euro cross.

 Head Dealer Alexander Alexandrov

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