European stocks turned sour on Friday amid a widespread risk-off sentiment fuelled by investor concerns ahead of today’s G7 summit. Emerging market worries add to the gloomy picture. Trump recently said he was looking forward to straighten out “unfair trade deals” at the upcoming summit which suggests the rhetoric from both sides could be rather aggressive and negative. By the way, Germany’s Altmaier has noted that no one knows how G7 summit will end, which adds to uncertainty in the global markets. As such, Britain’s FTSE 100 loses 0.14 per cent to 7,693, France’s CAC 40 sheds 0.21 per cent to 5,437, while German DAX 30 has been lower by 0.72 per cent to 12,718. US stock index futures tumbled ahead of the open as the summit kicks off.
The risk aversion fuelled safe-haven yen demand which is the main beneficiary today, with USDJPY continues to correct lower and as a result has turned red in the weekly charts. The price failed to keep above the 110.00 threshold overnight and dropped back to one-week lows marginally above the 109.00 level. The downside pressure could intensify further in the short term, should trade tensions escalate during the summit. Depending on the outcome of this event, the pair may open lower on Monday as the probability of further risk aversion is rather high. The immediate support comes at 109.00 and then around the 108.70 figure.
EURUSD has been accelerating its downward correction from mid-May highs reached yesterday around 1.1840. The pair struggles to regain the bullish impetus as the risk-off environment curbs euro demand. The additional pressure came from the economic front. In particular, Germany April industrial production declined 1.0% vs. +0.3% m/m expected. The release is another sign that the driving force of the euro zone economy lacks momentum this year. This in turn could prevent the ECB from an earlier QE exit which is mulled in the markets this week. The signals from this front are expected from next week’s ECB meeting which is going to be the key event for the single currency.
GBPUSD turned lower as well, after a failed attempt to confirm a recovery above 1.34. However, despite the lack of positive impulse and the pressure on the sterling from a risk-off environment, the downside potential looks limited in part due to some early signals from the BoE deputy governor who in fact highlighted the need to further rate hikes for fighting high inflation. From the technical point of view, the pound needs to get back above the psychological 1.34 level so that the bulls could get back into the game. The short term outlook looks neutral as long as the pair oscillates around the mentioned level.
Brent crude is back under pressure after the recent short-term spike to $77,50. The price has retreated from highs amid profit taking due to market concerns amid uncertainty ahead of the OPEC+ meeting later this month. The additional pressure comes from the overall risk-negative sentiment in the global financial markets. In this environment, Brent was unfazed by the statement by Iran’s OPEC governor who said oil could reach $140 on US sanctions and Venezuela worries. It looks like the market is more focused on the lingering uncertainty around the potential OPEC output increase, while technical factors add to the bearish pressure as the price remains vulnerable to further losses as long as Brent trades below the $77 threshold and the 20-DMA at $77,50.
Spot gold failed to keep gains above the $1,300 threshold yesterday and has been trading with a marginal bullish bias on Friday. The price remains below the psychological level as the impetus from risk-off environment looks limited. The bigger picture for the precious metal remains the same – the bearish risks prevail, the upside potential still limited. In the short term, the price will likely show further consolidation within the established range.
Nathan Lambert, Head of Global FX Analytical Department