European stock markets opened on the back foot on Wednesday as Chinese shares declined amid the increased US-China trade tensions after the Trump administration announces plans to levy next wave of China tariffs on August 23. However, the indexes have regained ground since then and got back in the green territory as investor sentiment has stabilized. Slightly higher commodity prices coupled with the absence of the immediate response from China to new US tariffs helped to prevent a deeper sell-off in risky assets. As such, Britain’s FTSE 100 adds 0.82 per cent to 7,781, France’s CAC 40 gains 0.07 per cent to 5,525, while German DAX 30 rises by 0.37 per cent to 12,694. US stock index futures point to a flat open as trade war fears are overweighed by strong corporate earnings.
The greenback creeps higher after some profit-taking, but continues to lose ground against the Japanese yen as safe haven demand prevails in the currency markets. Still, the downside potential looks limited as the buck clings to the 111.00 figure after a brief dip to one-week low of 110.83. Some pickup in the US Treasury bond yield assisted the pair to find support near the 111.00 mark which if holds could serve as a base for a recovery should the risk-on trading return. As for the prospects of a more significant recovery, the price needs to regain the 20-DMA at 111.70.
EURUSD faced offers in the 1.1630 area and was rejected from six-day highs as the dollar bulls reemerged amid rising trade jitters. The pair is back below the key 1.16 threshold with the next support areas come at 1.1550 and 1.1530. As there are no any other drivers in the market for now, the pair will continue to follow the general market sentiment which in turn depends on trade headlines. And should the risk-on sentiment return, the price may yet challenge the trend line resistance, which is currently located at 1.1630. A break above will open the way to 1.1650 and 1.1680. A risk for this bullish scenario is the revival of political concerns in Italy and weaker German 10-year yields.
GBPUSD dropped to end-August 2017 low of 1.2854 after a dip below the key 1.29 support. The technical picture has worsened significantly, and more bears could join the game after a loss of an important support region. The pair failed to recover on Tuesday eves as the greenback was bleeding across the board. And today, the downside pressure on the pound has intensified amid a recovery in the buck demand. The general widespread pressure on sterling comes from the rising threat of a no-deal Brexit. So the pound could burse some more losses because of this risk as such a scenario has not been fully priced in yet.
Brent crude shows signs of momentum exhaustion as the price failed to challenge the $75 figure once again and turned lower in the daily charts as the bulls need some fresh impetus to rush the asset higher. API data showed the US crude oil inventories declined by more than 6 million barrels last week, and now traders are waiting for a confirmation of a bullish report from EIA. Should the official numbers come in worse that API’s estimate and market expectations, Brent could accelerate its downside correction amid profit-taking after a rise over the past few sessions. In the bigger picture, however, the price has an upside potential amid the looming sanctions on Iranian oil exports, while trade war jitters come as a downside risk for Brent.
Gold price failed to proceed with yesterday’s recovery and settled in the $1.210 area again. The yellow metal remains very sensitive to dollar demand which resumed amid a new wave of trade concerns. As such, there are no any substantial changes in the technical picture for gold now, and the precious metal still could challenge the $1,200 threshold in the medium term as the buck keeps trading within a bullish trend.
Nathan Lambert, Head of Global FX Analytical Department