European stocks turned lower on Thursday as rosy investor sentiment weakened amid a lack of details in US-China trade talks. It seems that both sides are committed to striking a trade deal, and the Chinese foreign ministry said on Thursday that there has been progress in talks with the United States. But lack of actual results, arrangements and details makes investors nervous, which caps further upside move in global stocks. Market participants are also focused on the Federal Reserve’s rate hiking path as the central bank expressed some concerns over the prospects for economic growth.
European investors are also cautious ahead next week’s critical vote in the UK parliament. Yesterday, the Parliament agreed that the government must come up with a plan-B within three days if the ‘Withdrawal Agreement’ is not approved during the vote. As such, German DAX 30 sheds 0.20% to 10,871, Italy’s FTSE MIB gains just 0.13 per cent to 19,204, Britain’s FTSE 100 loses 0.15 per cent to 6,896, while France’s CAC 40 declines by 0.53 per cent to 4,788. US stock index futures are trading lower after four sessions of gains.
The greenback turned higher mid-day after an aggressive sell-off following a ‘dovish’ FOMC meeting minutes. It looks like traders decided to seize the opportunity to buy cheap USD while the general tone around the buck remains negative. A ‘dovish’ shift in the Fed’s outlook is a major hit for the US currency that was enjoying the monetary policy divergence last year. Now, instead of prospects for further rate hikes, the USD faces the risk of a “stagnant’ Fed policy. There are also speculations about the possible rate cut some time later but these fears look exacerbated, at least, so far. Now, the dollar is eyeing Powell’s speech due later today. The Fed’s governor comments could hurt the currency again if he confirms the impeding pause in tightening.
EURUSD has finally managed to pierce the resistance at 1.15 and reached mid-October highs earlier in the day around 1.1570. But the pair failed to preserve gains and attracted profit-taking. As a result, the price turned negative on the day but remained above the 1.15 handle which is the key level for the bulls in the short term. A daily close above this figure and thus confirmation of an upside breakthrough will cement the euro’s positions, though negative signals from the ECB, Italy, France, or economy could derail the existing bullish tone in the common currency.
The pound turned red as well, after another failed attempt to break above the 1.28 hurdle. Despite the general dollar weakness, cable will hardly dare to stage a sustainable rally in the days to come as traders are cautious ahead of the critical vote in the UK parliament due next week. Until then, GBPUSD will likely remain a sell on rallies, while further dynamics will depend on the vote outcome. If the agreement is not approved, the pound will sink briefly but could quickly rebound should the government deliver a plan-B. Technically, the price needs to hold above the 1.27 support area in the short term in order to avoid a more aggressive profit-taking. Weak dollar will likely cap the bearish potential for now.
Crude oil prices are resuming their rebound after a bearish correction earlier in the day. Brent touched a low around $60.40 and is trying to get back above the $61 figure following comments by Iraq oil minister who said that decline in oil prices has stopped ad prices are to improve gradually. He also added that any decision related to further OPEC cuts depends on monitoring price developments. The market stays afloat due to short covering and relatively positive risk sentiment as well. Brent needs to keep gains above $60 to resume the upside move in the short term. The key resistance after a break above $61 comes at $61.70.
Nathan Lambert, Head of Global FX Analytical Department