FX market outlook

FX market outlook

Oil extends gains ahead of OPEC meeting; Sterling below $1.30

Markets were off to a calmer start this week after some recent volatility. Risk sentiment improved and the yen was steady despite news that North Korea conducted another missile test over the weekend.

In terms of economic data releases during the Asian session, Japan’s trade balance came to a surplus of 481.7 billion yen compared to an expected surplus of 521 billion yen.

Moves in the dollar / yen pair mostly reflected overall risk sentiment, and after an initial dip to 111 yen early in the session, the dollar soon bounced back to reach 111.60 yen. Overall, the pair has been range-bound snice May 18, trading between 111 and 111.70 yen.

Sterling saw a big dip against the dollar back below the key $1.3000 level in reaction to headlines regarding Brexit.  Speaking to the Times on Sunday, UK Brexit Secretary David Davis warned that Britain will walk away from Brexit negotiations unless Brussels drops demands to charge the UK 100 billion euros to leave the European Union.

The euro remained close to a six-month high against the dollar, hitting an early session high of $1.1209 before edging lower. A series of strong Eurozone data recently has been supportive of the single currency, while in contrast, some soft data out of the US, combined with difficulties facing the Trump Administration, have weighed on the greenback.

In commodities, oil prices continued higher on optimism that the May 25 OPEC meeting will result in an extension of the current agreement to limit output. WTI oil reached as high as $51.22 a barrel in Asian trading, the highest since April 20.

Gold hovered around the $1255 an ounce level.

The economic calendar is light for the rest of the day but during the European session, the German Bundesbank monthly report will be eyed. Meanwhile, the two-day meeting of Eurogroup finance ministers begins today.

Speeches by FOMC members Patrick Harker and Neel Kashkari later today will be closely watched ahead of the release of the minutes from the May 3 Fed policy meeting due to be released on Wednesday.

In the UK this evening, UK Prime Minister Theresa May is due to speak in an interview conducted by BBC Television.