As global investors await developments in trade rhetoric, risk sentiment remains subdued, though the downside pressure has ebbed partially in Europe, after the Stoxx Europe 600 dropped to a five-month low earlier in the session. European exporters are under pressure amid concerns that the US tariffs will hurt demand and their revenues, while the emerging market crisis adds to the negative sentiment. As such, Britain’s FTSE 100 loses 0.19 par sent to 7,369, France’s CAC 40 edges up 0.25 per cent to 5,273, while German DAX 30 adds just 0.13 per cent to 12,056. US stock index futures set for a decline for a third session in a row, though Dow may rise marginally at the official open.
The dollar is trading mostly lower on Thursday, however a mild safe-haven demand prevents it from a deeper correction. Yesterday, the pound jumped aggressively on positive Brexit headlines from Germany, which fuelled the buck correction lower across the board. GBPUSD continues its recovery, but the impetus looks limited at this stage as the dust has settled, and there is still no any meaningful progress towards the deal with the EU. As long as the pound remains below the 1.30 threshold, the downside risks persist. The risk event for the sterling is the potential reemergence of risk aversion amid the upcoming US tariffs announcement on Chinese exports. Then, the market focus will shift to the US NFP employment report due on Friday, with decent numbers could send the pair back below the 1.29 figure.
EURUSD is trading flat amid a lack of directional impulse. There are no bullish catalysts for the euro itself, so the near-term price action will depend on the general sentiment around the greenback. The pair rose yesterday and keeps gains on Thursday, so the technicals point to possible further bullish attempts. But the trade-war and other headlines could derail the emerging recovery impetus and drive the euro lower again. In this scenario, the price could easily derail the 1.16 level, with the next target at the 20-DMA which now comes at 1.1560.
USDJPY is on the defensive after two days of gains. The pair was rejected from 111.75 yesterday, but stays above 111.00 so far. Should this support remain intact today, the downside risks will recede partially. However, we should remember that the Japanese yen benefits in times of stress more than the dollar, so bearish risks for the pair are still there. In a wider picture, the greenback needs to get firmly back above 112.00 in order to get rid of the imminent selling pressure.
Brent crude is on the rise after a two-day correction from highs below $80. The price managed to recover from under the $77 handle and targets the $78 barrier again. The upcoming Iranian sanctions continue to support the market, but on the other hand, trade wars and emerging market turmoil cap the upside potential at this stage. The EIA inventory data could fuel the current rebound partially should the numbers point to a decent decline in the stockpiles. The overall picture remains bullish as long as Brent trades above the $73 level.
Gold prices extend the recovery amid the retreat in the buck. The yellow metal is trying to regain the $1,200 figure and needs a daily close above this psychological level to confirm the local rebound from this week’s lows just below $1,190. Gold may have a chance to finish the trading week in the positive territory should the greenback fail to receive a meaningful support from trade war escalation. Despite the recent improvements in the precious metal technical picture, the general sentiment around gold remains bearish, and investors still don’t consider the metal attractive for buying.
Nathan Lambert, Head of Global FX Analytical Department