Trade war fears are rising again, and following a short-term break, the sell-off in global stocks has resumed on Friday. Overnight, Trump instructed the US Trade Representative to consider $100 bln of additional tariffs on Chinese goods, citing China’s “unfair retaliation” against prior US trade actions. Today, China commerce ministry said it’s fully prepared to respond to new American tariffs and highlighted that under these conditions, the two sides cannot conduct negotiations. On the whole, nobody is going to make concessions, therefore world stocks will continue to remain vulnerable to further losses down the road. However, the bearish impetus in the European markets looks relatively limited for now, with Britain’s FTSE 100 lost just 0.09 per cent to 7,193, France’s CAC 40 dipped 0.17 per cent to 5,267 and German’s DAX 30 slipped 0.37% to 12,261. Wall Street set for more gains on the back of risk-friendly environment.
Meanwhile, currency markets are digesting mixed US jobs data, though the overall reaction is rather muted. According to the report, the US economy added only 103K jobs in March versus the expected 193K increase. Moreover, the unemployment rate held steady at 4.1% against a drop to 4.0% expected. Against this background, the average hourly earnings, which came at 2.7% as expected failed to inspire the dollar bulls. After the release, the greenback turned lower across the board, however the overall March employment picture will hardly change the Fed outlook on rates, so in fact, the market shouldn’t overestimate the importance of today’s figures. Now, the focus shifts to the Fed governor testimony due later today. But we’ll hardly see any meaningful reaction from the USD pairs, unless Powell impresses the market by unexpected statements, for example, on the hawkish side.
The EURUSD pair is coming off from lows around the 1.22 support, though the bullish momentum still looks limited, despite the greenback turned sour after the US data. The current correction attempts are mainly local ones, while the overall downside risks for the pair remain. The single currency made too many failed bullish attempts lately, which increasing its vulnerability from the technical point of view. So, EURUSD still may test the 1.22 figure in the short-term, should the dollar avoid pressure from Trump’s actions. As for GBPUSD, the pair lost the key 1.40 mark yesterday and is now trying to recoup its previous losses, trading around 1.4050. But the fact that the pound has probed the psychological support highlights the increasing downside risks for the British currency. Besides, the pair fails to regain the 1.41 mark since March 28, which adds to negative short-term risks.
USDJPY turned negative after the contradictory US employment figures, down from one-month highs around 107.50. Additionally, the bullish potential for the pair is traditionally capped by a risk-off environment, supporting the yen as a safe haven currency. The bears are threatening the 107.00 level again. Considering the never-ending “tit-for-tat” tariff game between the US and China, traders will likely use a strategy of selling rallies amid the increasing threat of a trade war. Daily close above 107.00 is needed to resume the ascent in the short-term.
Brent futures managed to stem intraday losses recently on the back of souring dollar demand following the jobs report. The prices are now back above the $68 level, though still negative on the day and the week. The oil market fundamentals took the back seat amid growing trade tensions between Washington and Beijing. Traders concerns over the global growth and, therefore, global oil demand are the key for the market now. Against this background, the immediate risks for Brent remain bearish, and for further clues commodity investors should further follow the risk sentiment dynamics in the global financial markets.
Gold has gained strongly in the last couple of hours as the greenback turned red after dismal employment figures. The yellow metal retraced the previous losses and is now back above the $1,330 area, though it is yet to close above this level to confirm the local bullish break. On the whole, the current positions looks vulnerable as any sighs of resurging greenback demand will drive gold back down. And, as one can see, risk aversion doesn’t help the precious metal much.
Nathan Lambert, Head of Global FX Analytical Departament