Global markets are gradually returning to risk-on trading after another sell-off early in Asia. European stocks are all trading higher on Tuesday after some recovery in the Asian markets. German political situation looks to be resolved as Chancellor Angela Merkel and her allies have finally reached a compromise in an immigration dispute that threatened to split the coalition government. These developments gave the additional incentive for European investors to buy stocks. As such, Britain’s FTSE 100 adds 0.59 per cent to 7,592, France’s CAC 40 gains 0.93 per cent to 5,325, while German DAX 30 rises by 1.25 per cent to 12,391. US stock index futures point to a higher open Tuesday as trade war anxiety has ebbed for the time being.
The greenback is mostly losing ground against major rivals, though the downside pressure is limited, and the buck looks relatively stable generally. EURUSD has been trading with a dismal upside bias, unable to regain the impulse despite the political situation in Germany has improved. The latest euro zone data showed that June retail sales came out at 0.0% MoM vs. the expected rebound by 0.1% after a decline by 0.1% during the previous month. The weak results have put some pressure on the single currency as weak sales point to dismal outlook for inflation in the region and, as a consequence, low ECB rate hike expectations. The pair needs to firmly regain the 20-DMA in order to challenge the 1.17 threshold which is the key obstacle for bulls targeting the 1.1720 area. The short-term outlook for the euro looks rather uncertain and dim.
GBPUSD feels more confident, with the pair continues its attempts to break above the immediate resistance at 1.32. The pound received a boost from hawkish Sanders’ comments as the BoE official called bad weather effect on the economy temporary and highlighted that rates may need to rise faster that market expects. Moreover, UK June construction PMI came out at 53.1 vs. 52.5 expected. However, despite these bullish drivers, the pair failed to challenge the mentioned psychological resistance, which confirms that Brexit uncertainty is still there. There is also a widespread cautious tone in the risky assets as trade war fears persist, keeping the greenback afloat. In a broader picture, GBPUSD needs to break above the 20-DMA at 1.3260 to stage a more pronounced recovery.
USDJPY refreshed late-May highs earlier in the day above 111.00, but failed to keep gains and retreated marginally below the key level. The pair signals a lack of further impetus after five days of bullish move in a row. On the other hand, the downside potential is limited at this stage as the risk-on environment prevails in the short term. The price needs to keep above the 110.40 area in order not to lose the bullish impetus. The risk factor for the dollar is another sell-off in the risky assets. Generally, the pair still looks bullish and could continue its ascent gradually.
Brent crude has been trading around the $78 mark. The prices resumed the rally after yesterday’s correction after Libya declared force majeure on some of its crude exports, resulting in 850,000 bpd of supplies being disrupted. The additional support came from the loss of Canadian supplies. Production at Syncrude Canada’s oil sands facility will remain offline through July, which will help to further drain inventories in the US. API’s weekly report is due later today, with the evidence of further decline in US stockpiles could push the prices even higher amid the rising global supply concerns. After a break of the $78 barrier, Brent will target the next resistance area at $79.50.
Gold prices are attempting to stage a corrective rebound from fresh 2018 lows reached earlier in the day below the $1,238 figure. The metal remains deeply in the downtrend, despite it is aggressively oversold. The prices need to regain the $1,255 level at least to get a chance for a more sustainable recovery. The current bullish attempts still look uncertain, and buyers are unlikely to push the yellow metal significantly higher as it is no longer attractive as a safe haven asset, while the UD bullish trend remains firmly intact. So, further losses are more likely in the coming days rather than a spectacular rebound from the current levels.
Nathan Lambert, Head of Global FX Analytical Department