European open – Markets building on Friday bounce

Jobs and Powell the ideal tonic for investors

An extraordinary equity market rally on Friday is carrying some positive momentum into the open on Monday, with Europe eyeing a higher open as investor anxiety eases, for now.

The combination of a very strong – and completely unexpected – jobs report and rather dovish comments from Jerome Powell proved the ideal tonic for investors at a time of such angst. The labour market figures far exceeded market expectations, the only downside being the increase in the unemployment rate, but even this came as a result of the rise in participation which is ultimately a good thing.

Powell following this by stressing that the Fed will be patient and will shift if necessary was the icing on the cake. With markets at such depressed levels compared to the start of the fourth quarter, there was plenty of motivation for investors to pile back in. Whether they’ll stay in is another question because this is only one risk factor – albeit an important one – and am openness to shift is not a change in itself.

Asia cautious about bullish mood

Gold eyeing $1,300 and USD softens on Powell comments

The reaction in the dollar was interesting on Friday, with the currency rallying strongly in response to the jobs report before reversing course following Powell’s comments. Given that markets had completely priced out a hike this year prior to the release, this isn’t necessarily a surprise but it could keep the pressure on the greenback in the near future.

Gold Daily Chart

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This initially saw gold come under some pressure as the dollar rallied but once it started to come off, the yellow metal was heading back towards $1,300 which remains a key resistance level to the upside. The risk environment may have temporarily returned, taking some of the shine off gold, but I don’t think this will stop it if the dollar continues to weaken, as currently looks likely.

The Feds monetary policy reaction function is yawing dovish

Oil bounces as risk appetite improves

Oil has also become closely linked to the risk environment lately, with a global slowdown being an obvious downside risk for prices. The rally on Friday, with another looking on the cards today, is proving supportive for Brent and WTI although the EIA report last week did take some of the edge off the recovery.

Inventories were relatively flat last week, which was above expectations of a drawdown, weighing a little on prices. This could be a reflection of slower demand, hence the drop in price, or suggest that Saudi Arabia’s attempts to manipulate the data and lift prices aren’t working as hoped.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.