Market focus is on US-China trade relations again, as Huawei CFO arrest over a reported breach of US sanctions on Iran fuelled renewed worries about the potential derail in the trade backdrop. As a result, risky assets fell sharply across the board, with global equities took a strong hit amid the trade-related worries. In Europe, major indexes are losing over 2%, with Britain’s FTSE 100 plunged to a two-year low in early trading amid a rout in mining shares – Glencore lost over 5% on the day. As such, German DAX 30 declines by 2.35% to 10,936, Italy’s FTSE MIB loses 2.46 per cent to 18,853, Britain’s FTSE 100 declines by 2.18 per cent to 6,770, while France’s CAC 40 loses 2.19 per cent as well, to 4,834. US stock index futures are drifting lower as well, in tandem with global shares.
The greenback has got a safe-haven bid today, but as the US Treasury yield curve remains inverted in the shorter-end and the 10-year yields continues to stay under pressure, the upside impetus is limited. The inverted curve is indicating that the US economy may fall into recession and make the Federal Reserve reverse the course after further hiking in 2019. In this context, Friday’s non-farm payroll data will be widely expected by traders. The dollar could come under intense pressure should the key job report disappoint. However, the bulls still hope that the release will bring a fresh bullish impulse to the US currency.
EURUSD has settled in the 1.1350 region and volatility is low in the pair as traders refrain from major actions amid the uncertainty surrounding Italy. Italy’s ruling parties said they will only consider deficit target above 2.0%. In particular, Lega party doesn't want deficit to be lower than 2.2%, while Five-Star party willing to consider 2.1% deficit, but no lower than that. All this means that the European Commission will likely reject the plan once again as Brussels insists on more drastic concessions. Therefore, the downside risks for the euro from this front remain high as penalties for Italy could follow. Technically, the pair needs to get out of the 1.13-1.14 range to show a more directional move. The immediate meaningful resistance comes around 1.1420.
USDJPY feels the pressure amid the safe-haven yen demand. The price has extended losses to 112.58 earlier in the day and has settled below 113.00 since then. I the short term, the pair will likely remain on the defensive as risk-off sentiment prevails in the global financial markets. Moreover, the selling pressure could intensify should investors continue to get rid of high-yielding assets amid the trade concerns. From the technical perspective, the dollar needs to stay above the 112.30 support area to escape a more aggressive slump. Otherwise, the pair may derail the 112.00 level for the first time since the end of October.
Brent crude resumed the decline amid the lack of progress in OPEC talks. Saudi reported recently that there is no agreement yet to cut oil production, other sources said earlier that OPEC+ cut unlikely to be larger than 1.4 million bpd. But traders doubt that the cut will exceed 1 million barrels at all. I the short term, prices will remain volatile and could move sharply in either direction. The final market reaction will likely follow Friday evening and early next week, when investors will be digesting the verdict by OPEC+ group. Should the exporters disappoint traders, Brent could easily get back below the $59 threshold and challenge the long-term lows below $58.
Nathan Lambert, Head of Global FX Analytical Department