US Open Note – European stocks in cheerful mode; dollar is still the king despite pullback

Christina Parthenidou, XM Investment Research Desk

European indices hit record highs, but economic outlook still bleak

The European equities had a pleasant start after a long weekend on Tuesday, rushing to catch up with the rally in US rivals, sending the STOXX 600 and the German DAX 30 to fresh record highs early on Tuesday. The stock rally emerged after a barrage of US data provided evidence that the recovery in the biggest economy of the world is picking up steam, while news that some Democrats favor a smaller increase in corporate taxes than the one Biden initially proposed, further boosted business sentiment.

Apparently, the vaccines are the only tool that will likely drive stimulus and global growth in the coming quarters, but Europe, unlike the US, may find itself in the doldrums if it fails to speed up its vaccination delivery and further relax lockdown restrictions. Hence, although the Sentix investor confidence index jumped to the highest since 2018 in April, any data improvement in Europe remains exposed to future deterioration, making any pickup in the euro and EU stocks fragile for now.

The EU pledged to meet its vaccination target of 70% of adults by the end of June today, though, given the complications with AstraZeneca and its vaccine exports, this target seems to be less realistic now.

Following yesterday’s rebound, euro/dollar stabilized around the 1.1813 resistance level today, where the surface of the Ichimoku cloud is placed on the four-hour chart. Euro/yen was also facing difficulties to overcome its March peaks despite the sell-off in the Japanese yen, whereas against the British pound, the common currency managed to recoup a small share of its lost ground after the drop to a one-year low of 0.8471 on Monday.

Dollar index decelerates, but the US is still the king

Meanwhile in the US, the dollar was taking a breather against a basket of major currencies, and Wall Street is expected to open softly to the downside according to futures tracking the S&P 500 and Nasdaq. Yet, the resilience in US Treasuries yields, and particularly the strength in the 10-year yield, which has significantly deviated from its counterparts in the rest of the world, standing slightly above 1.70%, is expected to keep adding support under the greenback.

The dollar slipped slightly below the 110.00 number versus the yen, but it managed to gain a similar percentage against the risk-sensitive aussie and kiwi.

JOLTS job openings (14:00 GMT) will be the only highlight in the US calendar for the rest of the day.

Oil bulls return before Iranian nuclear talks

Turning to commodities, crude prices resumed their bullish momentum as hopes to revive the Iranian nuclear accord were pushed back before indirect talks between Iran, the US, Russia, and China start in Vienna today. WTI and Brent crude prices soared by more than 1.5%.

In metals, copper lost more than 1% as gold was pushing to extend its three-day recovery.