In light holiday trade on Monday, the Asian stock markets drifted lower after rising in early session. Trade war fears renewed as China imposed tariffs of up to 25% on 128 US imports over the weekend, after Trump raised duties on steel and aluminum imports earlier in March. This fuelled profit taking following some rebound amid squaring positions before other overseas markets open after Easter holidays. Meanwhile, the tech US stocks start the second quarter on a negative note and continue to fall after last week’s sell-off. The US major stock indices opened in the red with Nasdaq leading the declines, shedding over 0.5 per cent in early trading. It looks like the shares will dip to fresh lows before investors start to buy again.
The dollar is relatively steady, with European currencies are trading marginally higher. EURUSD struggles to regain the 20-DMA at 1.2350 amid low liquidity and thin trading. The key euro area economic data this week include CPI numbers and PMIs. Should the core inflation slow down, the expectations for ECB tightening will decrease. Such a scenario could hurt the single currency, especially if the key Friday US jobs report comes positive and reflect a faster wage growth. In this case, the monetary policy divergence will play against the euro. On the other hand, the bearish potential for the EURUSD pair will remain limited as long as dollar is on the defensive amid US-China escalating trade tensions.
GBPUSD set for a corrective rebound after a bearish week. The pair is targeting the 1.40 mark again. A break above is needed to shrug off the immediate downside pressure and come back to highs above the 1.42 threshold. There are no significant economic releases from the UK this week except for PMI figures which wont’ affect the broader picture for the pound. Therefore, the British currency will rely on the general sentiment around the greenback. The risk for the USD is the geopolitical background, while the positive impetus may come from the macroeconomic front. Should the dollar fail to attract buyers, the pair will likely overcome the intermediate resistance 1.4150.
USDJPY holds steady marginally above the opening levels, receiving a local support in the 106.15 area where the 14- and 20-DMAs converge. Despite the prevailing risk-off environment, the Japanese currency fails to attract bulls at the current levels, in part due to weak Tankan survey, while the US March final Markit manufacturing PMI came out at 55.6 vs 55.7 expected. Despite the result is lower than the preliminary reading of 55.9, it is the highest final number since March 2015, pointing to a healthy growth in activity. In the short-term, USDJPY needs a break above the 106.50 area in order to stage a more steady recovery above 107.00.
The oil market suffers increased volatility on Monday. After an early rally to the $70 threshold, Brent attracted aggressive profit taking which dragged the prices below $68. The US oil rig count slashed by seven over the last week, but this bullish sign failed to give a steady support to the market. The retreat was partly caused by trade war fears as tensions and mutual restrictions between China and US may curtail the Chinese economy and oil demand. Against this background, traders didn’t dare to push prices above the $70 barrier which caused a corrective retreat. However, in a broader picture, the sentiment remains bullish, and after a local correction Brent may resume its ascent in the short-term, should the current pressure dissipate.
Meanwhile, gold prices are trading in a recovery mode, regaining the bullish tone after recent sell-off to lows at $1,321. The yellow metal is probing the $1,325 area amid relatively steady dollar trading and prevailing risk aversion. But the rebound looks vulnerable and may turn out unsustainable as the greenback may regain a more robust upside bias down the road. Moreover, technically, the bearish risks for gold remain as long as the prices remain below the $1,348 figure. So, the precious metal could well meet offers around $1,340 in the short term.
Nathan Lambert, Head of Global FX Analytical Departament