After a general improvement in market sentiment, following positive signs from Washington hinting at an imminent agreement between Democrats and Republicans on a much-needed US COVID relief package, as well as positive PMI data from China illustrating an ongoing economic recovery, the euro gained some ground versus the dollar during early Thursday trading.
It is interesting to note that the single currency’s gains relative to the greenback are occurring despite words of caution from the head of the ECB, Christine Lagarde, mentioning on Wednesday the possibility of greater flexibility towards inflation and the release on Thursday morning of slightly disappointing PMI data for Italy and Germany, a sign perhaps of dollar weakness being, for the moment, the leading narrative behind the pair’s dynamic.
Shares traded higher at the beginning of Thursday’s trading session in Europe with all sectors opening in green territory, led by health care. This boost to market sentiment comes after investors were fuelled with hopes of a fresh stimulus package in the US. However, traders of European shares face a busy morning following mixed PMI releases from key economies, with data from Germany coming in below estimates.
These disappointing data may negatively impact the euro, but this is likely to positively affect stock prices in a mechanical effect on a very short-term basis. Investors will then shift their trading focus towards US data, with initial jobless claims and manufacturing PMI, which should increase market volatility prior to tomorrow’s last NFP before the US presidential election.
The eurozone’s best performance comes from Paris as the CAC-40 Index is now trading well above 4,800pts. The market registered a solid bullish gap between 4,775pts and 4,800pts following a “V-bottom” above 4,700pts. The bullish rebound is likely to continue towards 4,870-4,905pts and 4,950pts by extension if the zone at 4,775-4,800pts remains unbroken on a short-term basis.