Macro economics

Analitics on 09/04/2018. Trump’s hints at trade talks with China give some relief to markets

European equities are trading mostly higher on Monday, tracing earlier gains in Asia as the trade war concerns have abated somehow. Trump administration has softened its rhetoric over the weekend signaling the tariffs aren’t implemented yet and that the two countries may work out a deal, absent a trade war. Meanwhile, investors’ optimism looks fragile because of a tough position of Chinese officials, insisting that the negotiations are not possible under current conditions. Moreover, China is reported to study CNY devaluation as a tool in trade spat, which increases the risk of affecting currency markets, on top of stocks and commodities. After a decent jump early jump, European stocks show a more subdued dynamics. In particular, Britain’s FTSE 100 has turned slightly negative and loses 0.49 per cent to 7,148, France’s CAC 40 is up 0.10 per cent to 5,263 and German’s DAX 30 adds up 0.12 per cent to 12,256. Wall Street set for gains at the open, though the emerging risk-on appetite looks rather fragile.

The euro has shrugged off the bearish pressure and jumped to one-week highs recently, probing the 1.23 mark once again. Traders have already digested the dismal euro area Sentix expectations index which dropped dramatically, to 19.6 from 24 in March. The bullish jump in the EURUSD pair is mainly due to the deteriorating sentiment around the greenback ahead of Wall Street open, as the Chinese position in the trade tensions with US remains very tough. Further on, the market focus will shift to the upcoming FOMC meting minutes due on Wednesday and the ECB governor Draghi statement, also due this week. EURUSD is back above 1.23 for now, but to confirm the break, it needs to close above the 20-DMA around 1.2320.

GBPUSD has also regained the bullish bias after a negative consolidation in Asia and early Europe. The pound, which regained the 20-DMA on Friday, extends its upside move to fresh April highs above the 1.40 mark. Amid a lack of economic drivers, currency traders have focused on the situation around the trade war and follow the risk attitude in the global markets. As the dollar got on the defensive again, the GBP regains the advantage amid the risks stemming from the United States. From the technical point of view, the pair has approached an important intermediate resistance of 1.4150 as a break above will open the way to 1.42.However, should the bearish pressure on the dollar ease, the goal won’t be achieved in the short term.

USDJPY failed to challenge Friday highs around 107.20 and slipped from daily tops at 107.20. The pair is attempting to keep above the 107.00 threshold but lacks impetus amid a still cautious behavior in the market. The additional downside pressure on the pair came from statements by the Chinese officials who may opt to devalue the national currency in a trade conflict with the US. On the other hand, as long as there are no significant signs of resuming a widespread risk aversion in the global markets, the downside potential for USDJPY is limited, while in a broader picture, the bearish risks still persist. The greenback needs a daily close above the 107.00 mark to reduce these risks.

Crude oil market is going through a recovery amid short covering after a major sell-off on Friday. Brent futures are climbing back above the $68 figure due to increased demand for riskier assets and the geopolitical factor – the alleged bombing of a Syrian airbase by US flyers. Apart from the local corrective rebound, the market remains vulnerable and may resume the downside move, should any fresh signs of escalating US-China tensions reemerge in the nearest future. Besides, the market fundamentals from the US side are still bearish for Brent as the shale oil production continues to rise, as well as rig count. The number of oil rigs increased y 11 last week, to 808, which is the highest level since March 2015, signaling further production growth.

Spot gold is trading in its traditionally volatile manner. After an early dip below $1,330, the yellow metal is probing the $1,333 mark again, reflecting the unstable risk environment. The event risk for gold this week is the FOMC meeting minutes due on Wednesday as the release may fuel dollar rally (at least, a short-term one), should the regulator highlight a positive economic outlook and therefore confirm its commitment to further tightening. The US CPI numbers (also on Wednesday) will mater as well, as strong data is also a risk for the precious metal. The short-term bullish potential for gold looks rather limited at the moment and there is a high probability the prices will finish the day below the $1,330 mark.

Nathan Lambert, Head of Global FX Analytical Departament

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Country Rate Value
USA Federal Funds 0,25 %
Switzerland 3 Month LIBOR Range -0.75 %
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EU Refinancing Tender 0,00 %
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