European markets are trading slightly higher on Friday but in general, the dynamics looks cautious as investors are getting increasingly worried over a potential economic slowdown in the euro zone after German factory orders fell at their sharpest rate in two years, while the latest round of U.S.-China trade talks ended without any meaningful conclusions despite further progress in relations. Chinese Vice Premier Liu He said a new consensus had been reached by both parties over the text of a deal. Meanwhile, the Italian government is set to cut its 2019 GDP forecast to just 0.1 percent, which is significantly lower than a 1 percent expansion forecast in December. Against this backdrop, Britain’s FTSE 100 adds 0.28 percent to 7,422, France’s CAC 40 is up 0.25 percent to 5,477, while German DAX 30 is flat at 11,987. US stock index futures are marching higher amid US-China trade hopes.
The greenback turned lower on Friday after a brief recovery yesterday. EURUSD is trading in the positive territory on the daily charts but still lacks momentum to break above the 1.1250 intermediate resistance as mixed economic data from the euro zone coupled with resurgent worries over the Italian economy cap the upside potential. At the same time, the pair is supported above the 1.12 handle, while a break below this level will open the way to 2019 lows. Locally, the common currency is supported by German data. German industrial output rose by 0.7 percent in February due to a surge in construction activity while manufacturing production dipped. The rise in output exceeded expectations for a 0.5 percent increase on the month. Meanwhile, January’s reading was revised up to show no change from a previously reported contraction of 0.8 percent. Should the pair accelerate the upside move in the short term, the 1.13 figure will come back into play.
Brent crude touched a high of $70 yesterday and since then tries to stay above the $69 barrier, oscillating around this support. The market is driven by contradictory factors that cap the upside, along with technical factors, and at the same time limits the corrective pressure at this stage. On the one hand, the geopolitics around Libya and Venezuela, alongside the progress towards a trade deal between the US and China, lift market sentiment. Trump said yesterday that many of the toughest issues between the two countries have already been resolved, while the deal is possible in the next four weeks.
On the other hand, surging U.S. oil production, which rose to a record 12.2 million bpd last week, caps the bullishness. Besides, there are lingering concerns over global growth as economic data from major economies paint a mixed picture. Technically, Brent needs a fresh driver to make a clear break above the $70 handle. Otherwise, the barrel could suffer a more aggressive correction down the road.
Gold prices briefly registered a one-month low around $1,280 yesterday. After a mild recovery, the bullion is back on the defensive on Friday, oscillating around the $1,290 figure. Despite dollar demand has abated, the precious metal remains under pressure in general as the risk-on sentiment in the global financial markets prevails, albeit rather muted. As long as positive US-China headlines continue to emerge, gold will likely remain on the defensive, while bullish attempts will be unsustainable and short-lived amid further progress towards a trade deal. Technically, the yellow metal needs to get back above the $1,300 barrier in order to see an improved technical picture.
Nathan Lambert, Head of Global FX Analytical Department