Positive sentiment across European markets

(XTB Analysis Team)

Indices across Europe started the week trading higher and with a positive mood which has spread throughout markets extending after an upbeat session in Asia. This also comes after a strong post-NFP Wall Street session on Friday which did not seem to have a major impact on sentiment. Furthermore, news of an expected massive increase in traffic during Chinese New Year helped support investor confidence as the country has also been significantly reducing its restrictive policies related to covid-19. The FTSE100 is still hovering at the highest level in several years after gaining over 3% since the start of 2023 and despite a slight pullback at the start of this week, positive general sentiment may be able to sustain the upward move. However, it will be important to keep an eye on any impactful geopolitical developments along with central banker speeches, as a major unexpected event may derail this performance and lead to a continuation of the pullback.

Oil prices boosted by a potential increase in China demand

Oil prices also started the new week on a positive note with Brent and WTI trading almost 3% higher on the day as the removal of significant restrictions in China along with a major reopening appear to be the main causes of this move. Starting from January 8, 2023, China no longer requires people arriving in the country to undergo a quarantine with negative Covid test results being enough to enter the country now. Moreover, Chinese authorities expect traffic during the upcoming Chinese New Year holiday to double from 2022 levels after several years of serious limitations placed on the world’s second-largest economy. While it remains to be seen if this upward move will continue, these are clearly positive signs when it comes to the demand side of the equation and without a move from the supply side we could see prices potentially test nearby resistance areas.

Gold reaches 8 months high

As the US dollar continues to show signs of weakness, with the USD index consolidating at the lowest levels since mid-2022, we have seen a noticeable strengthening of Gold with the price reaching an 8-month high as it hovers in the $1873 area following a 2% increase from the end of last week. It appears that this upward move also coincides with the positive sentiment seen across stock markets, as a main driver for that also seems to be a key focus on central bank policy and in particular the Federal Reserve, which may be approaching the end of its hawkish policy goals this year. Much is still uncertain but a weaker dollar along with declining US treasury bond yields may sustain the price increase of the precious metal while on the other hand, the risk-on moods seen across markets may limit a further upside in the near future. Naturally, this situation could change given the potential volatility.

GBP/USD outlook: Sterling extends advance on growing expectations for more dovish Fed

(Slobodan Drvenica – Windsor Brokers)

Cable continues to benefit from rising expectations for more dovish Fed after US labor data on Friday added to signals that the central bank would further ease the pace of policy tightening, increasing the possibility for a 25 basis points hike in the next meeting and lowering expectations for a 0.5% hike.

Sterling rallied 1.6% on Friday, after US labor data added to risk sentiment, making the biggest daily rally since Nov 10, with the formation of a bullish engulfing pattern on a daily chart, generating an initial bullish signal.

Monday’s extension hit the highest since Dec 21 and broke through the Fibo barrier at 1.2144 (50% retracement of 1.2446/1.1841), signaling the formation of a higher low at 1.1841, after the pullback from Dec 14 high (1.2446) was contained by rising thick daily cloud.

Improving daily studies (momentum is about to break into positive territory and moving averages returned to a bullish setup) underpin near-term action, which looks for a daily close above the broken Fibo level (1.2144) to keep bulls intact for a further retracement of 1.2446/1.1814 pullback.

The next pivots lay at 1.2215 (Fibo 61.8%) and 1.2304 (Fibo 76.4%) violation of which would expose a key barrier at 1.2446.

Extended dips should find ground above the 1.2100 zone (last week’s multiple highs) to maintain a bullish bias.

Res: 1.2174; 1.2215; 1.2241; 1.2304.
Sup: 1.2100; 1.2072; 1.2044; 1.2012.