European stocks opened lower on Thursday, with the negative tone prevails during the session as the escalation of a US-China trade war weighs the general investor sentiment in the global financial markets. China has announced plans to put tariffs of 25% on US products worth $16 billion, in a reaction to similar plans from Washington. As there are no signs of easing tensions between the two countries, risk-off environment will prevail in the markets in the short-term. As such, Britain’s FTSE 100 loses 0.67 per cent to 7,724, France’s CAC 40 sheds 0.12 per cent to 5,495, while German DAX 30 rises by 0.46 per cent to 12,691 amid the weakening euro. US stock index futures are little changed so far as the trade worries are overshadowed by strong earnings.
The greenback has been trading with a bullish bias on Thursday, though buyers are rather cautious ahead of the US CPI report due tomorrow. The buck is supported by rising trade tensions, fuelling risk-off sentiment. EURUSD continues to oscillate around the 1.16 figure after the ECB economic bulletin for its July meeting was published. The central bank highlighted risks to the global trade and pointed that downside risks to the global economy have intensified. On the whole, the regulator didn’t mention anything that could alter the current subdued rate hike expectations, as well as there were no any remarks that could revive euro demand. As such, the pair’s direction continues to depend on the general dollar sentiment, and the price could finish this week in the red if the US CPI comes in on a positive side.
The GBPUSD pair was partially rejected from fresh one-year low of 1.2840 after the reports that EU could offer a major Brexit concession to UK PM May during the upcoming talks. But traders so far refrain from a more pronounced positive reaction amid a lack of details and confirmations from the officials. Anyway, if so, it will be a relief for sterling which suffers badly in recent days amid the growing threat of a no-deal Brexit. The pound feels the additional downside pressure from dollar rise and the risk-off environment amid the never-ending US-China tensions. In a knee-jerk reaction, the pair briefly jumped above 1.29 but retreated afterwards as bulls are not ready to enter the game at this stage yet. Should the dollar demand ease in the sort-term, however, the price could climb back above 1.39. A daily close above this level will partially ease the immediate downside pressure.
The market focus will soon shift from trade jitters to the upcoming US CPI report which could affect expectations over the Fed tightening. Expectations for two more rate hikes this year remain high, and strong figures will cement investor view. In this scenario, the greenback will rise across the board and could send the euro below the 1.1550 support, while the pound may challenge the 1.28 threshold. As for the USDJPY, the price tries to recover above the 111.00 figure, but as long as it remains below the 112.00 barrier, downside risks prevail.
Brent crude oil remains close to mid-July lows reached yesterday after China threatened to impose 25% tariffs on US oil exports. This announcement has scared the market participants and fueled a massive profit-taking after the recent recovery towards the $75 level. As such, the price has reached the low of $71.67 and has got back above $72 on Thursday, though the current impetus looks too weak. The market behavior shows that investors are afraid of the consequences from the escalation of a trade war between the two countries, which could lead to a lower global demand. So as long as the markets remain stressed, Brent will be vulnerable to further loses, though after a more that 3% decline, it looks attractive for opening new longs.
Nathan Lambert, Head of Global FX Analytical Department