European stocks climbed on Wednesday as the downside pressure on the Italian assets has eased on reports the country’s government will rein in spending plans. In particular, the government has revised its initial plan and now pledges to cut the deficit to 2 percent in 2021, in line with EU rules. That brought some relief to regional markets, though the risk-on sentiment remains subdued. Against this backdrop, Italy’s FTSE MIB recovers by 1.27 per cent to 20,824, Britain’s FTSE 100 adds 0.60 per cent to 7,519, France’s CAC 40 rises by 0.59 per cent to 5,500, while German DAX 30 is closed for a public holiday. US stock index futures tick higher due to a general improvement in investor sentiment after the news reports from Italy.
EURUSD tried to recover earlier in the day but failed to break above the 1.16 level and had to resume the downside move as the markets have quickly digested the news from Italy. After a short-term rebound attempt, the pair is back in the red and could yet challenge the 1.15 support. Fresh US data added to the negative tone around the euro as the greenback strengthened across the board after the ADP report showed that the private sector created 230K jobs in September versus 184K expected. A positive private release could cement market expectations ahead of the key Friday’s employment report, which may keep the pair under pressure in the short term. As such, the bearish risks still prevail in the pair. However, as the market focus is now on wages and inflation, it’s the earnings figures that matter for traders lately, so should this metric disappoint, the greenback will proceed to a bearish correction amid profit-taking.
USDJPY has recouped yesterday’s losses and targets the 114.00 figure again. The pair is back on the offensive due to the prevailing risk-on environment and the supportive comments by Fed officials who confirm the central bank’s commitment to further gradual tightening. The general technical picture still looks bullish, though the downside risks could reemerge later this week should the risk sentiment is back in focus, of the US NFP employment report comes in on a weaker side. Technically, the pair needs a daily close above the 114.00 level to confirm the recent bullish breakthrough.
Brent crude has settled around the $85 threshold, unable to refresh four-year highs amid a lack of fresh drivers. The supply-side worries due to the upcoming Iranian sanctions continue to keep the market underpinned, but Brent may need some additional catalysts to proceed with the rally as the bullish impetus seems to be exhausted at this stage. However, after a pause, the asset may resume the ascent as the fundamentals continue to point to the tight market with a threat of supply shortage next year. In the short term however traders will focus on the EIA report which could cap Brent below $85 should the data show that crude oil inventories and output increased last week.
Gold prices refreshed one-week highs just above the $1,208 level but failed to sustain the momentum and started to retreat again. The metal’s inability to stage a more robust recovery is due to still strong dollar. Despite the USD demand has abated today, the index remains close to six-week highs registered on Tuesday. AS a result, the precious metal has retreated into the negative territory and could lose the $1,200 figure again should the greenback remain afloat. In the longer term, the outlook is still too modest to expect a sustainable rally from the current levels.
Nathan Lambert, Head of Global FX Analytical Department