The energy shared set the negative tone in the European markets on Tuesday, as oil companies are nursing losses ahead of today’s Trump’s decision on the Iran nuclear deal. Cautious investors sent the major indices lower from three-month highs, with Italian stocks feel the additional pressure amid growing concerns over new elections after coalition talks failed. The risk-off environment could intensify down the road, should the US President decides to leave the nuclear pact as reimposing sanctions on Iran could lead to raising geopolitical uncertainty in the Middle East. FTSE 100 adds just 0.11 per cent to 7,575, France’s CAC 40 loses 0.38 per cent to 5,510, while German’s DAX 30 sheds 0.56 per cent to 12,875. Meanwhile, Wall Street futures slipped ahead of Trump’s verdict on Iran.
The greenback continues to climb higher amid growing expectations of a more “hawkish” tightening path by the Federal Reserve. The central bank governor Powell noted today that moves by the Fed
to raise interest rates after a long period of keeping them low should not be disruptive to the global economy. Despite the cautious comments, the dollar demand prevails, as the market believes the regulator will have to take more aggressive tightening steps amid a steady growth and rising inflation.
Against this backdrop, EURUSD refreshes 2018 lows below 1.19. The pair dropped to 1.1850 and looks set to continue its bearish path as the eurozone fundamentals disappoint, which stands in contrast with robust US economic figures of late. Should the dollar gets further boost, the single currency may tumble to fresh lows or the year just above the 1.18 mark.
GBPUSD failed to resist the dollar’s pressure either. The pair is trading around the January lows, making shallow attempts to regain the 1.35 figure. Apart from strong greenback demand, the pound feels the pressure from Brexit uncertainty, as the Foreign Secretary Boris Johnson has criticized May’s proposals for a customs partnership. Moreover, traders refrain from buying sterling ahead of the Bank of England meeting due on Thursday. Almost nobody expects the central bank to hike at the upcoming meeting as the economic data from the UK is quite disappointing of late. Traders will be focused on the Carney’s press-conference as well as on the BoE’s updated economic outlook which may shed the light on the potential timing of the next rate hike. So far, there are no signs of easing the downside pressure on the pound which may probe recent lows around 1.3485 in the short term.
USDJPY has recovered above the 14-DMA and is attempting to regain the 109.00 level amid the general dollar demand. Nevertheless, the pair still lacks bullish momentum needed for challenging the resistance at 110.00 and the key 200-DMA around 110.25. The matter is that there is some yen demand ahead of Trump’s announcement as investors refuse to buy risky assets in the face of this event. Moreover, following the decision, if the US President decides to leave the nuclear deal, the risk aversion could intensify and therefore put the pair under pressure. So, there is a risk of a drop back below the 109.00 figure in the short term.
The oil market is focused on Trump’s verdict on Iran. New sanctions on the OPEC’s third-largest oil producer will disrupt the exports and production in the country, which will add to the current efforts by the cartel and its allies. The longer-term impact could be significant, in addition to collapsing Venezuelan production, which makes the market even tighter. However, the immediate market reaction could be negative as there is a risk of profit taking within the strategy “buy the rumor, sell the fact”. In this case, Brent, which is trading below the $76 mark, may slip to the 20-DMA at $73,50. But the overall market sentiment remains bullish, with the potential correction should be taken as a buying opportunity.
Following yesterday’s timid slide, gold prices have intensified the bearish move as the greenback demand remains. The yellow metal lost the 100-hour SMA just below the $1,312 level and looks set for retesting lows below $1,302. Should the dollar continue its ascent in coming days, gold may drop to fresh lows and even challenge the $1,300 area, where the buyers mat emerge. In the broader picture, as long as the metal remains below the 100-DMA above $1,323, the downside risks prevail.
Nathan Lambert, Head of Global FX Analytical Departament