Following the negative dynamics in Asia, European stocks slipped mildly Thursday, as the preliminary data showed the eurozone inflation surprisingly fell in April in another sign of slowing down the economy. The local rebound in euro and sterling puts the leading indices under additional pressure. Geopolitical worries remain as well. Global investors are focused on the two-day US-China trade talks which began with Trump’s call for “level playing field”. The negotiations will set further direction for world stocks for the rest of the week. FTSE 100 sheds 0.20 per cent to 7,528, France’s CAC 40 loses 0.29 per cent to 5,513, while German’s DAX 30 is down 0.31 per cent to 12,762. Meanwhile, Wall Street futures point to flat open as investors are cautious amid trade talks.
The greenback is trading in a corrective mode against major currencies as the Fed statement failed to inspire bulls overnight. The US central bank hasn’t given any “hawkish” signals to the market, though pointed to rising inflation. The current dollar retreat is more a correction amid some profit taking after the recent rally. Besides, traders remain cautious ahead of tomorrow’s NFP report which may reignite USD demand, should the numbers –especially wages figures – show good results. EURUSD makes timid attempts to climb back above the key 1,20 level though trading in the positive territory. The euro demand is subdued amid the fundamental USD strength as well as due to dismal eurozone inflation numbers. The pair trimmed gains as the report showed the flash CPI came in below estimates at 1.2% YoY in April. Despite the recovery attempts, the single currency still looks vulnerable to further losses as the greenback looks set for fresh tops.
GBPUSD is trying to cling to the 1.36 mark but looks hesitant. UK’s Services PMI came in below expectations at 52.8, but the pair little changed after the report. It looks like traders have already put up with the signs that the British economy is slowing down. The discouraging UK data made many analysts and traders give up the idea that the Bank of England will hike next week, and today’s release only added to this gloomy picture. Therefore, should the central bank makes bold to hike rates, it is going to be a major bullish surprise for the pound. In the short term, the overall dollar sentiment will set the direction for the pair. The recovery potential looks limited at this stage.
USDJPY dipped to local lows above the 109.00 threshold which so far contains the bearish pressure. The dollar rally stalled after failed attempts to test the 110.00 mark yesterday. As there is no widespread risk aversion in global markets, the bullish potential of the Japanese currency looks rather timid. However, should the pair lose the support at 109.00 in the nearest future, the downside pressure could intensify. Further direction of USDJPY will depend on tomorrow’s US labor market data and the greenback’s reaction to the numbers. If the figures come out on the positive side, the dollar will resume its ascent towards 110.00 and higher.
Crude oil prices turned sour again following the timid bullish attempts earlier in the day. Brent failed to hold above the $73 level and retreated from highs around $73,60. The barrel is trading within striking distance from the 20-DMA at $72,60. A break below this mark could fuel a more aggressive profit taking in the short term. The market was disappointed by yesterday’s EIA report which pointed to another record weekly US production and swelling crude inventories. Friday’s Baker Hughes data may show the rig count increased further, to fresh three-year highs. If so, Brent may lose the mentioned local support and extend losses to $72,40, or even challenge this area.
Gold demand reemerged on Thursday amid a widespread dollar correction. The bullish attempts are so far limited by the $1,318 level which is the key barrier on the way to $1,320. The price needs co regain this mark in order to establish a more pronounced corrective rebound. The risk for this scenario is the potential resuming of the greenback’s rally. Therefore, the threat of testing the $1,300 area remains as long as the overall dollar outlook stays constructive.
Nathan Lambert, Head of Global FX Analytical Departament