Global stocks enjoy a relief rally on Thursday as US-China trade tensions have eased somewhat after Washington expressed a willingness to negotiate the relations with Beijing. At this stage, there may emerge a feeling among investors that all these trade fears may be overblown. Anyway, the market focus will remain on this theme in the short- and medium term as the conflict may yet escalate again. The consultation period on the 25 per cent US tariffs from China will last around two months. And for now, following a decent Wall Street rebound, Asian stocks appreciated and fuelled a major jump in European stocks. Britain’s FTSE 100 gained 1.62 per cent to 7,147, France’s CAC 40 rallied 1.91 per cent to 5,240 and German’s DAX 30 appreciated 2.19% to 12,219. Wall Street set for more gains on the back of risk-friendly environment.
The dollar has accelerated its upside move before the US markets open, pushing major currencies to fresh lows. The renewed greenback demand sent EURUSD to early March lows below 1.2240 as the dismal eurozone economic data has disappointed the euro bulls and put the pair under additional pressure. Retail sales rebounded only slightly in February after two months of decline. Annual sales growth accelerated to 1.8% versus the previous result of 1.5% which was revised dramatically down from 2.3%. Additionally, the European services PMI undershot expectations. However, the key bearish driver for the pair is dollar’s local rebound which may continue, should Friday’s key US employment data point to a healthy growth in jobs and earnings. In the short term, the EURUSD may see a corrective rebound.
GBPUSD reversed early gains and gave up to dollar bulls. The pair slipped to two-week lows but managed to hold above the 1.40 threshold once again. UK services PMI dropped sharply in March, to 51.7 from 54.5, which was the lowest level since Brexit referendum. However, in fact, there is no anything dramatic in the release as the decrease in index was mainly due to snow disruption. Tomorrow, the 1.40 support will have a test by the US jobs data. Should the earnings increase, the greenback will stage a widespread rally amid increasing Fed rate hike expectations. A break below the psychological mark will open the way for a deeper correction, though considering the fundamental resilience of the pound, dip buyers may emerge in this case.
USDJPY is trading on the positive territory but lacks momentum to make a clear break above 107.00 which is the key on the upside in the short-term. As risk aversion has abated, the yen demand faded either, but it’s not enough to give the needed impetus to the buck. The pair is probing three-week lows above 107.00 but only a daily close above this area will open the way to further bullish attempts from the technical point of view. The next key focus for USDJPY is tomorrow’s US employment data.
After the recent dip to two-week lows, Brent struggles to decide on the direction, flirting with the $68 level. Crude oil markets lack distinct signals to show a more distinctive dynamics. The recent resurgence in dollar demand undermines crude prices’ attempts to stage a recovery and break the $68 barrier. Besides, the US crude oil production continues to increase, which also makes traders nervous. For the time being, the market may continue its consolidation amid lack of meaningful drivers. Should Brent fail to close above the mentioned level, the downside risks will increase.
Spot gold has resumed its bearish move following yesterday’s failed attempt to stage a rally. The dollar rebound coupled with risk-on environment don’t give the yellow metal a chance to regain the upside momentum. In the short-term, gold will remain vulnerable to further losses, especially should the price crawl down below the $1,325 figure which is at risk now. The next immediate support lies at $1,321.
Nathan Lambert, Head of Global FX Analytical Departament