European stocks open mixed on Friday and even tried to rise at the start of the session, with the performance has worsened down the road, though the bearish impetus remains limited. Today, the US tariffs on 34 billion dollars worth of Chinese imports took effect and China promised to take similar measures as well. Despite the official start of a trade war between the two countries, investors are relatively calm, in part, due to the fact that global financial markets were well prepared to these developments. As such, Britain’s FTSE 100 loses 0.35 per cent to 7,576, France’s CAC 40 sheds 0.04 per cent to 5,364, while German DAX 30 is flat at 12,464. US stock index futures pared earlier losses and turned slightly positive ahead of the opening bell.
Meanwhile, currency markets focused entirely on the US jobs numbers which came out mixed and dragged the dollar lower across the board. June headline non-farm payroll figure came out better than expected – the economy added 213K new jobs vs. the anticipated rise by 195K. The previous result was revised higher to 244K from 223K. On the negative side, wage growth disappointed at just 0.2% MoM vs. 0.3% and 2.7% YoY vs 2.8%. Moreover, the unemployment rate rose to 4.0% from 3.8% as a result of labor participation increase to 62.9% from 62.7%. As such, a healthy employment growth failed to mask the weak spot in the release – the lack of activity in wage growth. Nevertheless, today’s results will hardly alter the sentiment in the FOMC, and the central bank will continue to stick to its current tightening plan. However, there are some risks for the rate hike outlook in the longer term as trade war consequences on the US economy could be rather damaging should the US and China continue to exchange mutual tariffs.
Following the report, the already weaker greenback has accelerated the downside move across the board. The EURUSD pair quickly jumped to mid-June highs at 1.1763 and remains on the offensive. The single currency received some support earlier in the day, with stronger-than-expected German industrial data fueled ECB rate hike expectations, while weaker dollar gave additional impetus to the euro. A break above the 1.1720 resistance is a good technical sign, and a daily closing above this area will firm the pair’s position at this stage.
GBPUSD also rose amid the dollar retreat and reached a daily high of 1.3268. However, the pair failed to challenge yesterday’s highs as the 20-DMA continues to restrain bulls. The price has trimmed gains since and may get back below the opening levels as the dust around the US jobs report settles. The key support remains at 1.32, while on the upside, the pound needs to keep above the current levels around 1.3250 to avoid a more pronounced retreat in the short term. The remaining Brexit uncertainty restrains the upside potential in GBPUSD, despite the tone around the USD has soured these days.
Brent crude has been nursing further losses on Friday, with the short-term outlook has worsened after the price broke below the $77 level which stood as support earlier. There are no any significant bearish drivers at the moment, and the ongoing negative slope is partly explained by profit-taking ahead of the weekend. In a broader picture, the risk is increasing that the total blockade on Iranian exports, along with other supply disruptions globally, could trigger a massive shock in the global oil markets, and fuel a spectacular rise in prices. So, the longer-term Brent prospects look rather positive, while the current retreat will likely be limited. The immediate support comes at the 20-DMA around $76.
Gold prices have been trading with a bearish bias on Friday, after three days of a corrective recovery from 2018 lows. The precious metal faced a stiff local resistance of $1,260 and had to retreat again. However, the pressure is rather muted, and the price so far manages to keep above the $1.250 area. A daily close above this level could open the way to further bullish attempts, while the overall picture remains negative as long as the yellow metal is trading below the 200-DMA at $1,302. Should the downside pressure on the greenback increase in the coming days, there will be a chance for the bullion to get back above the $1,260 region.
Nathan Lambert, Head of Global FX Analytical Department