European markets have been trading in a recovery mode on Friday, with the tech shares lead the gains after spectacular Apple results. This coupled with some recovery in energy markets helped to lift investor sentiment around the world. Meanwhile, the US-China trade tensions remain in the investors’ radars. In another sign of escalation, China threatened to impose 5-25% tariffs on $60 billion in U imports, while highlighting that implementation of these measures is subject to U action. The Chinese officials said, the measure is to guard its interests and to keep trade frictions from escalating. So it seems that both sides are raising stakes in the trade war, which could derail the cautious optimism in the markets. Meanwhile, Britain’s FTSE 100 adds 0.75 per cent to 7,633, France’s CAC 40 gains 0.13 per cent to 5,467, while German DAX 30 rises by 0.47 per cent to 12,604. US stock opened with modest gains.
The US economy added just 157K jobs in July, coming in below estimates at 193K and down from the prior 248K result which however was revised from 213K. Meanwhile, the unemployment rate declined to 3.9%, matching prior surveys. Average hourly earnings were in line with previous estimates –at a monthly 0.3% and 2.7% YoY growth. In a knee-jerk reaction, the dollar slipped lower across the board as traders were disappointed by a weak headline figure. But the greenback has regained ground afterwards as the general picture showed neutral results and confirmed that the US economy is ready for further tightening. However, in a separate report, the July service PMI Market came in lower-than-expected, at 56 vs. 56.2, as well as the composite PMI, which has limited the buck’s recovery impulse.
As such, EURUSD has partially recovered from lows in the 1.1560 area, but so far remains below the 1.16 threshold, a break of which is necessary for regaining the short-term bullish bias. The euro zone July retail sales data has disappointed and added to the bearish pressure in the pair. EURUSD has been on the defensive for a fourth day in a row, and there is a risk of further decline as the greenback gets additional support as a safe haven currency against the backdrop of rising US-China trade tensions. As long as the single currency remains below the 20-DMA at 1.1670, the risk of a bearish move towards lows in the 1.15 area persists.
USDJPY has accelerated its decline after a rejection from levels above 112.00 earlier this week. The pair has slipped below the 111.40 intermediate support area and now targets the 111.00 handle. Should the price derail this level, the lows around 110.50 will come into play again. The yen demand could intensify in the short term amid fresh trade-war headlines, which is the key risk for the pair at this stage.
Brent crude has stabilized after recent recovery attempts and trading close to opening levels for the day. The price struggles to regain a convincing momentum after a two-day sell-off earlier this week. Brent now targets the $74 level after a brief dip below the $72 handle, but the price struggles in the $73.50 area as traders refrain from more actions ahead of the weekend. Also adds to the pressure the fact that Saudi Arabia’s oil production jumped to 10.65 million barrels per day, while Nigeria and Iraq have also seen their production rise substantially, which is offsetting the declining volumes in Venezuela, Libya and Iran. Moreover, investors are growing more and more concerned over the trade war consequences for the Chinese oil demand. As such, the recovery prospects for prices remain limited so far, and the immediate major resistance comes just above the $74 mark, where the 20-DMA lies.
Nathan Lambert, Head of Global FX Analytical Department