European markets entered the fourth day of gains on Wednesday amid positive signals from the US-China trade talks and strong economic data. It looks like the two countries are moving closer to striking a deal, having resolved most of the outstanding issues in their protracted trade dispute. U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are scheduled to meet with Chinese Vice Premier Liu He later on Wednesday to resume talks. Oil market rally adds to the positive sentiment in the global markets, with Brent registered fresh tops around the $70 figure.
Against this backdrop, Britain’s FTSE 100 adds 0.17 percent to 7,404, France’s CAC 40 is up 0.65 percent to 5,458, while German DAX 30 gains 1.31 percent to 11,908. US stock index futures are trading higher as well, supported by optimism over a trade deal.
The euro turned into a recovery mode after strong European data. Euro zone retail sales for February rose 0.4 percent, topping the median expectation of +0.2 percent, while the headline services PMI jumped unexpectedly to 53.3, the highest since November. As a result, the composite index for manufacturing and services rose to 51.6, better than the flash reading.
EURUSD was also lifted by risk-on sentiment, weaker dollar and a recovery in the German 10-year bund yields back into the positive territory. As such, the pair, after yesterday’s plunge to the lows below 1.12, jumped to the 1.1250 intermediate resistance where the recovery has stalled. A break above this barrier is necessary for the euro to get back above 1.13.
USDJPY extended the rally to fresh two-week high of 111.57 marginally above the 200-DMA, a break above which the dollar is yet to confirm. The yen demand weakened amid a widespread risk appetite amid speculations about trade talks and improved economic data from major countries. As the negotiations between the US and China resume today in Washington, in the short term, the news from this front will remain the key driver for the pair. Later in the week, traders will shift focus to the US NFP employment report. Disappointing figures could drive the greenback lower across the board.
Oil market rally continues, with Brent has finally reached the $70 barrier that has scared the bulls as the prices retreated to the $69/60 region. Trading marginally higher on the day. There is a number of factors that are driving the barrel higher these days. They are positive risk sentiment, rising odds of a deal between the US and China, the prospects of tightening US sanctions on Iran, Venezuelan crisis, signs of slowing activity in the US shale fields, and better economic data from China. Against this backdrop, the market will likely remain in a bullish mode but in the short term, there is a risk of profit taking at attractive levels. Technically, in this case, the immediate support comes at $69.20. On the other hand, a daily close above the 200-DMA will confirm determination of the bulls to take Brent even higher.
Nathan Lambert, Head of Global FX Analytical Department