European stock markets turned red after initial gains on Tuesday as investors don’t have a sustainable respite from trade-war worries, especially ahead of imposing new Trump tariffs on Chinese exports later this week. The emerging market turmoil adds to the stress in the financial markets as the currencies continue to suffer losses and the contagion risk is growing. As such, Britain’s FTSE 100, loses 0.61 par sent to 7,458, France’s CAC 40 sheds 1.38 per cent higher on the day, at 5,339, while German DAX 30 declines by 1.12 per cent to 12,209. US stock index futures struggle for direction but mostly lower amid uncertainty over NAFTA negotiations.
The greenback rallies across the board as demand reemerged against the backdrop of worsening risk sentiment globally amid trade wars, NAFTA uncertainty, emerging market crisis and Brexit issues. Additionally, the buying pressure is increasing ahead of Friday’s NFP employment report that could show a decent jobs growth, according to estimates. As the euro suffers from Italian budget issues and sterling continues to fear a no-deal Brexit, the mentioned drivers were enough to put a substantial pressure on the European currencies, though the tendency has eased during the recent trading. In part, the buck was disappointed by Fed’s Bullard comments as the official said the central bank is about where it needs to be on rates.
EURUSD slipped towards 1.5-week low of 1.1550 and managed to stay above the 20-DMA at 1.1540 which is the last line of defense ahead of the 1.15 psychological support. The Augist euro zone PPI came in better than expected, but the release failed to stem the decline in the single currency, which is pressed by a stronger dollar and the “Italian factor”. However, the sentiment could improve somehow in the short term after the reports that deficit will stick to 2 per cent of GDP. On the whole, however, the risks from this front remain as talks on the budget will start this week as officials in Rome return from the summer break. From the technical point of view, the pair needs to hold above the mentioned moving average to avoid more steep losses in the nearest future, while a break above 1.16 will signal a weaker downside pressure. The overall sentiment around the dollar remains the key driver for the pair.
The pound is nursing losses for a fourth day in a row on Tuesday, with the price has slipped below the 20-DMA, down to lows marginally above the 1.28 figure. Apart from dollar demand, sterling is battered by Brexit concerns and the overall negative market sentiment towards high-yielding assets amid the never-ending trade wars. The additional pressure came from the disappointing UK construction PMI which came in at 52.9 in August, well below 55 expected and 55.8 in the previous month. The dismal macro data lately makes investors worried that Brexit consequences could hit the UK economy even stronger which will prevent the Bank of England from further rate hikes. In this context, the pound is vulnerable to further losses in the longer term.
Brent crude spiked to late-May high of $79.70 amid the reports that Mexico rigs are evacuated ahead of a hurricane. September is a traditionally considered as a month of hurricanes, and oil prices receive support from weather factors during such periods. So despite the overbought signals and the stiff resistance of $80, Brent could proceed with the rally in the coming weeks as tropical storm Gordon races towards US Gulf Coast and threatens crude oil production. Apart from this factor, prices are supported by a reduction in Iranian exports and renewed strife in Libya. Against this backdrop, the stronger dollar is not enough to cap the rally in crude oil markets. Considering the power of influence of weather factors on prices, we could see Brent testing the $80 threshold in the short term, though some profit-taking may take place as well before another push higher.
Nathan Lambert, Head of Global FX Analytical Department