Global investors seem to have digested a cut to the IMF’s global growth forecast, partly due to a breakthrough in China-European Union trade talks as the European Council President Donald Tusk declared a successful summit on China-EU trade. Both sides promised to work on intellectual property and sustainability issues. Also, the agreements included a declaration that China would move more quickly to join a World Trade Organization agreement on government subsidies. Against this backdrop, Britain’s FTSE 100 adds 0.05 percent to 7,429, France’s CAC 40 is up 0.40 percent to 5,458, while German DAX 30 rises by 0.40% to 11,898. US stock index futures are slightly higher on Wednesday ahead of the FOMC meeting minutes release.
The greenback is mixed against the majors, with European currencies resumed the recovery while the yen demand is subdued as risk sentiment has improved slightly. EURUSD is testing weekly highs around 1.1280, where the bullish attempts were capped yesterday. In general, the common currency remains under pressure due to poor fundamentals in the euro area which confirm that the ECB will keep the patient stance longer than expected earlier. Besides, the threat of a trade war between the US and the EU is denting the euro appeal after Trump threatened to impose tariffs on $11 billion of EU imports such as food and wine. Technically, the bearish risks prevail for the pair as long as the common currency remains below the 1.13 handle. On the downside, the immediate support comes at 1.1250.
USDJPY briefly dipped below the 111.00 handle yesterday but managed to resume the upside move on Wednesday. But the upside potential looks rather modest at this stage as investors are cautious ahead of the FOMC minutes release. Should the central bank express a dovish tone, the greenback could come under a widespread selling pressure. On the other hand, Fed’s confidence in the economic outlook may support the currency, or at least prevent it from nursing further losses. The important resistance comes around the 200-DMA at 111.50, while the key upside barrier comes at 112.00.
Crude oil prices resumed the upside move on Wednesday after a limited bearish correction a day earlier. Brent is challenging the $71 barrier once again, with bulls seem to remain in play though the impetus is waning gradually as the futures are starting to look overbought at this stage. The market is still supported by a number of bullish factors, including US sanctions against Iran and Venezuela, violence in Libya, progress towards a deal between the US and China, OPEC+ efforts, and generally weaker dollar. On the other hand, lingering concerns over the global economy continue to weigh on prices and could drive Brent lower should fresh signs of weakness emerge.
Nathan Lambert, Head of Global FX Analytical Department