European stock markets are trending lower on Friday after earlier bullish attempts that quickly failed. Apart from the lingering trade tensions with China, Canada and the EU, Trump is reported to be targeting Japan next in the trade rhetoric. The threat of another US trade war with Asian nation has scared investors and capped the attempts of some improvement in risk sentiment. As such, Britain’s FTSE 100 loses 0.98 par sent to 7,247, France’s CAC 40 sheds 0.23 per cent to 5,231, while German DAX 30 declines by 0.25 per cent to 11,925. US stock index futures set for another decline in the end of the trading week.
The US labor market data came in better than expected and fueled dollar demand across the board. The economy created 201K jobs last month, while the average weekly earnings came in at 0.4% m/m and 2.9% y/y versus 0.3% and 2.7% expected. The unemployment rate stayed at 3.9% versus 3.8% expected, but it didn’t spoil the general positive picture as traders focused on earnings numbers. After the report, expectations of two more rate hikes this year have cemented, and the greenback rose across the board. EURUSD reversed earlier gains following the release from the US and got back below the 1.16 figure. As a result, the pair got to the negative territory in the daily and weekly charts and is coming closer to the 20-DMA again. However, as the dust settles, the euro could trim its intraday losses before the end of the day, though the buck will remain on the offensive.
The USDJPY pair got back above the important 111.00 level amid a widespread dollar rally. However, the pair is yet to confirm a break above this figure as the bullish momentum may be unsustainable because of the prevailing attractiveness of the Japanese yen as a safe haven currency in times of stress. As such, after the initial reaction, the pair could trim intraday gains and even come under pressure again as the trade war escalation looms. As for the cable, it is also trending lower, but remains in the positive territory in the daily charts. GBPUSD jumped above 1.30 earlier, to 1.3027, on Brexit headlines from the EU officials. Traders seized the opportunity on positive hints at the potential resolving the Irish border issue. However, the pound may yet come under pressure from this factor, and the threat of a no-deal Brexit remains.
Brent crude is making shallow recovery attempts after three days of correction from lows marginally below the $80 handle. Traders refrain from more aggressive buying as the fears of trade war escalation persist. The yesterday’s EIA report failed to inspire bulls despite it showed a decent crude oil inventories decline, by over 4 million barrels. The bearish components of the release sent the prices lower as gasoline and distillate stockpiles increased again. Despite the recent retreat, downside risks are limited for the time being, with market focus shifts to the Baker Hughes rig count data. Besides, traders will follow the general dollar sentiment as well as the geopolitical environment that caps the upside in oil prices, while the upcoming US sanctions on Iranian oil exports help Brent to stay afloat.
Gold prices dived in the red zone after the US labor market data came in stronger than expected. The yellow metal failed to keep gains from the two previous days and got back below the $1,200 figure, down to the 20-DMA around $1,194. The current dynamics confirms once again that the precious metal remains highly dependent on the dollar sentiment and thus vulnerable to further decline as the greenback performance remains relatively robust. By the way, another portion of Trump’s tariffs on China and his trade rhetoric on Japan could keep the USD demand elevated down the road.
Nathan Lambert, Head of Global FX Analytical Department