European stocks are trading marginally lower on Wednesday amid the rising concerns over a long term full-blown global trade war ahead of US tariffs implementation on Chinese exports on July 6. However, recent comments by Chinese officials have partially calmed investors as the country said it won’t fire the first shot on tariffs implementation before the US does. The overall environment in the financial markets globally remains uneasy, however, which prevents a sustainable rebound in major stocks. As such, Britain’s FTSE 100 loses 0.15 per cent to 7,581, France’s CAC 40 gains 0.25 per cent to 5,329, while German DAX 30 declines by 0.07 per cent to 12,339. US stock index futures point to a higher open Tuesday as trade war anxiety has ebbed for the time being.
The US dollar makes bullish attempts after a mild depreciation earlier this week. The EURUSD pair turned negative after failed attempts to challenge the 20-DMA, serving as the immediate obstacle on the way to 1.17 and higher. The overall trading dynamics is rather muted due to Independence Day in the US. The pair hasn’t received any support from stronger-than-expected euro area service PMI which came out at 55.2 vs.55.0 expected. The pair is partly under pressure ahead of the FOMC meeting minutes release due tomorrow, as traders expect a rather hawkish language from the central bank. EURUSD will get a chance for a recovery should the Fed disappoint dollar bulls, though the downside risks for the greenback remain limited for the time being.
GBPUSD jumped to a high of 1.3227 after upbeat UK service PMI, coming in at 55.1 in June – the strongest rate of expansion since October 2017. However, the pound has pared gains later, trying to cling to the 1.32 figure. Another strong economic number fuels expectations of the BoE rate hike in August. But the sterling refrains from euphoria as is needs to see further confirmation in the data that the UK economy is really ready for further tightening. Besides, the upside potential is still limited due to the remaining Brexit uncertainty. From the technical point of view, GBBPUSD still needs to regain the 20-DMA around 1.3250 to stage a more convinced recovery. The USD strength continues to prevent a sustained ascent in the pair.
USDJPY has been under pressure for a second day in a row, though the dynamics is rather muted due to thin trading conditions. The pair closed around the daily lows yesterday after failed attempts to get back above the 111.00 mark. Today, the price dipped to June 28 lows in the area of the key moving averages, where the dollar received some support and trimmed intraday losses. The pair could remain on the defensive in the short term as investors are rather cautious ahead of Trump’s tariffs, which limits the yen’s bearish potential. On the other hand, the USD demand may reemerge ahead of FOMC meeting minutes release due on Thursday.
Brent crude struggles to regain the $78 level after a severe correction on Tuesday. The upside is limited by the $78.20 area which is the intermediate resistance on the way to $78.50 and higher. The overall sentiment in the market is still bullish, but traders show uncertainty about the Saudi Arabia intention to increase production more than expected, in accordance with Trump’s recommendations. This is the key theme for the market at the moment, which causes directional intraday moves. As for the US data, the API report unveiled another large decline in the crude oil inventories which somehow supports prices. The official EIA data due tomorrow could confirm that the US shale producers reduce their activity further. Should production volumes decrease, Brent will receive a short-term boost, while developments in Saudi Arabia will remain in focus.
Gold continues its corrective recovery after yesterday’s rally from fresh 2018 lows. The price has briefly surged above the $1,261 figure earlier in the day, but has trimmed gains since then though remains in the positive territory. The yellow metal needs a much stronger boost mow to rise further, but dollar bulls continue to control the situation. Spot gold will benefit from USD dynamics should the Fed meeting minutes and US employment data disappoint. In this case, the price will have a chance to finish the week above $1,260.
Nathan Lambert, Head of Global FX Analytical Department