The global stocks extended their recovery on Tuesday amid signs the Republican leaders try to block steel and aluminum tariffs proposed by Donald Trump. Hopes that a global trade war may be prevented have revived demand for risky assets. Additionally, investors’ bullishness was supported by the Bank of Japan Governor’s “dovish” comments. Haruhiko Kuroda made clear that it’s too early to debate the exit strategy as the economy is still far from its 2% inflation target. The markets also gained support from the reports that the South and North Koreas may hold the first summit in more than a decade in late April. Against this background, the European shares continue the upside move, with Britain’s FTSE and Germany’s DAX jumped 0.8% on the day, to 7.174,16 and 12.187,60 respectively. French CAC 40 gained 0.64% to 5.200,36.
The US dollar is under renewed pressure following a short-term consolidation earlier in the day. The European currencies intensified their bullish bias as the greenback remains vulnerable to Trump’s aggressive plans and rhetoric. The USD index accelerated the retreat due to technical factors as well – the price slipped below the psychological 90.00 level. As such, the EURUSD pair is testing the 1.24 threshold for the first time since February 20. However, the single currency doesn’t have any meaningful drivers apart from dollar’s weakness; therefore the extent of the current bullishness in the pair depends on the scale of USD sell-off. A daily close above the 1.24 level is doubtful, at the greenback may yet stem its losses.
The GBPUSD pair is probing the 20-DMA above the 1.39 level and it looks like the 1.40 area is coming back into the game. Some pound bullishness is due to yesterday’s positive comments from May on Brexit and transition deal with the EU, while risk appetite and USD’s retreat add to the positive short-term picture. But further rally is far from certain, as there is still much uncertainty around Brexit. The market is looking forward for the EU’s feedback on the transition agreement later this week which will serve a fresh catalyst for the pound. Any new signs of disagreement between the parties could trigger profit taking at the current levels which are already high enough to be considered as attractive.
Meanwhile, the USDJPY fails to stage a steady recovery despite the widespread risk-on trading. Such a dynamics signals the predominance of dollar bears that returned to the market after a short respite. The pair faced resistance at 106.43 and back to square one in the 106.20 area. Despite the retreat, the greenback will likely keep above the yesterday’s lows below the 105.50 as the yen’s upside potential is limited due to decreasing market concerns and renewed risk appetite. In the short-term, it is important for the USD to stay above the intermediate support at 105.85 as a break below will open the way to fresh lows. Crude oil prices gained the upside momentum following the morning slumber, with Brent is now testing the $66 level for the first time this month. The rally has accelerated on the back of a general risk-on mood, dollar’s renewed bearishness, as well as hopes that OPEC members and the U.S. shale producers could send some promising signals to the market from the conference in Houston. Meanwhile, the API report is coming soon, and this is the key local risk for the current recovery. Another buildup in crude oil inventories may undermine the buyers’ enthusiasm and push Brent back below the $65 mark.
Following yesterday’s decline, gold resumed its ascent amid the renewed dollar sell-off. Despite Trump faced backlash on tariff imposition, there are still some concerns on the matter, which in turn gives additional lift to the safe haven metal and drives the greenback down. The prices edged up to $1.330,80 and look set for further rise, though the short-term bullish prospects look limited. Gold has recovered $28 since the start of the month, when spot prices touched a fresh low for 2018 at $1.302,75. In the bigger picture, as long as Trump-related risks remain, the key $1.300 support is safe. As for the current rally, the metal’s bullishness could reverse, should the dollar get an unexpected boost and recover across the board.
Nathan Lambert, Head of Global FX Analytical Departament