The European stock market set to rise for a seventh straight week, but most major indices eased slightly on Friday, taking pause after the recent ascent. Geopolitical tensions seem to take a back seat for the moment, especially after the announced meeting between the US and North Korean leaders due in June. The overall pressure on the risky assets has also eased after yesterday’s report showed that the US CPI increased less than expected. However, the European investors remain cautious ahead of the weekend and refrain from buying stocks. As such, FTSE 100 adds just 0.07 per cent to 7,706, France’s CAC 40 loses 0.28 per cent to 5,530, while German’s DAX 30 sheds 0.30 per cent to 12,983. Meanwhile, Wall Street futures point to further solid gains at the open.
The dollar continues its corrective dynamics fuelled by the latest US inflation data. However, despite the disappointment, the figures don’t affect market expectations over the Fed tightening dramatically. By the way, the probability of a rate hike at the June meeting is around 85%, just as before the release. Therefore, the current retreat in USD is mostly a technical one, and CPI numbers were just taken as a trigger for this technical correction. The overall picture remains bullish as long as the US economic data support further policy tightening by the Federal Reserve.
EURUSD has partially recovered from fresh late-2017 lows around 1.1820 and reached levels close to 1.1950. The pair’s bullish impetus looks limited, and the downside risks prevail as long as the price remains below the 1.20 threshold as well as the 200-DMA just above this level. Apart from the potential dollar demand resurgence, there is another risk for the euro – the political situation in Italy where populist parties may come to power. Against this backdrop, the pair will likely be attractive within a “sell on rallies” strategy in the nearest future. So it’s probably too early to call a bottom for EURUSD which could yet challenge the 1.18 figure.
GBPUSD jumped from lows at 1.3460 on Thursday and turned green today, as the dollar demand has faded. The pair has recovered above the 200-DMA at 1.3550 but is yet to confirm the break by a daily close higher. Short-term technicals improved somewhat, however the broader picture remains bearish as the Bank of England doubts that economic fundamentals will allow the central bank to hike this year. Down the road market participants will be closely monitoring the upcoming economic data as the reports point to a slowing growth amid high inflation. The “dollar factor” is also important at this stage as demand for the buck is likely to reemerge quite soon and put the pound back under pressure.
Crude oil prices stand motionless above $77, trying to decide on further direction. The fact that the bearish correction failed to develop, and buyers reemerged on a dip to $76,50, highlights that traders believe the prices set for further advance after a break. In fact, the fundamentals remain bullish, as the looming Iranian sanctions add to the positive picture formed by OPEC+ efforts and geopolitical risks. However, Brent may yet show a deeper retreat in the coming days, and the US oil storage and production data could serve as a catalyst for profit taking. Anyway, market participants should be cautious as the risks are high at the current levels.
Gold prices continue the local recovery and have already challenged the key 100-DMA at $1,325.50. This level was broken on April 26, and the rebound above will ease the immediate downside pressure significantly. However, the risks for the yellow metal still persist as the dollar may stage a comeback in the coming days. Should the price fail to break above the mentioned moving average, gold may get into a consolidation phase before another leg lower.
Nathan Lambert, Head of Global FX Analytical Departament