Global trade tensions and emerging market turmoil continue to set the tone for global financial markets. The risk sentiment has improved somehow after a massive sell-off in Asia but remains fragile. The uncertainty around the US-Canada talks on NAFTA adds to the bearish tone among investors across the globe. As such, Britain’s FTSE 100 loses 0.4 par sent to 7,428, France’s CAC 40 sheds 0.85 per cent higher on the day, at 5,297, while German DAX 30 declines by 0.56 per cent to 12,141. Meanwhile, Italy’s FTSE MIB buck the trend again, with the country’s stocks rally amid expectations that the government will announce a budget that won’t have a deficit higher than 2 per cent of GDP. US stock index futures tumble ahead of the official open as investors are getting increasingly nervous about the trade conflicts between the US and its partners.
The dollar seems to be losing its steam after yesterday’s rally which took the European currencies to two-week lows. But the USD bulls continue to control the moves as the persistent risk-off environment continues to support buying interest around the safe haven dollar. The emerging market crisis adds to the buck’s attractiveness as well. So the EURUSD pair was rejected from the 1.1530 area but still lack momentum to regain the 1.16 figure which is an alarming signal for euro bulls. The euro zone economic data failed to give a significant support to the single currency as the figures came in mixed. The service PMI was in line with projections, while retail sales came in lower than expected. The developments around the Italy’s budget remain in focus as well. Traders hope that the government will present a more EU-friendly budget, which could ease concerns over the country’s debt and come as a relief for the euro. But it won’t help should another sell-off wave arise in the nearest future. A daily close below 1.16 will confirm a more bearish tone around the single currency.
Meanwhile, the pound dipped to fresh lows after a break below 1.28 for the first time since August 24. The pair failed to find a bid on the UK PMI report, despite the index rose more than expected to 54.3 in August. Obviously, Brexit concerns remain in focus as EU Barnier has rejected the Chequers proposal from May. Recent UK official comments added to uncertainty on this front. In particular, the UK parliamentary member David Lidington said that the two sides are 85% on the way to a Brexit agreement, but at the same time, he mentioned that PM May is very committed to a Chequers deal. This last phrase highlights that a major issue is still to be resolved. So the pound remains vulnerable and could deepen its bearish retreat should the dollar finds fresh bids. A more convincing break below the 1.28 handle will open the way to the 1.2745 intermediate support. Should this level fail to hold, the price will target 1.27.
Brent crude oil slipped on Wednesday, reversing an aggressive rally the day earlier, as the impact of a tropical storm on US Gulf coast production turned out to be not as strong as initially expected. Traders used this factor as a catalyst for profit-taking which was quite appropriate, considering that Brent came close to the key $80 level. The prices touched the $77 figure earlier in the day, but has trimmed loses since then though remain on the defensive. Investors nevertheless don’t expect a much deeper correction in the market which is supported by expectations of the US sanctions on Iran due later this year, with the global supply could be severely affected as Iran is one of the largest exporters of oil in the world. In the short term, the market focus will shift to the US inventory data. Bullish figures from API could ease the selling pressure further.
Gold prices make shallow recovery attempts, with buyers still don’t rush to enter the game as the greenback demand remains robust as risk aversion dominates the global financial markets. The yellow metal encountered the 20-DMA at $1,196 earlier in the day and has stalled since then, failing to attract a more convincing buying pressure to challenge the moving average and target the $1,200 threshold again. Only a sustained recovery above this barrier could signal a partial easing of the downside pressure. In the short term, gold will remain vulnerable to further losses.
Nathan Lambert, Head of Global FX Analytical Department