European stocks have been trading deeply in red on Wednesday, as investor concerns over the trade war reemerged after the US announced its plan to hit Chinese goods with another $200 billion in 10% tariffs. Beijing promised to retaliate against a new threat. The deepening trade spat between the two countries fueled risk aversion across the global financial markets, with investors start to seriously fret about the consequences for the global economy. As such, FTSE 100 sheds 1.14 per cent to 7,603, France’s CAC 40 loses 1.19 per cent to 5,369, while German DAX 30 declines by 1.21 per cent to 12,457. US stock index futures tumble as trade war concerns prevail over positive expectations ahead of the earnings season.
The dollar is on the offensive against major rivals due to safe-haven demand. The resurgent greenback demand pushed EURUSD lower, with the pair briefly sank below 1.17 once again, before recovered somewhat. The price remains vulnerable to further losses as rising German yields add to the bearish pressure on the single currency. Now attention turns to US June CPI data due tomorrow. Should consumer prices point to growth acceleration, the buck will receive a boost across the board. In this scenario, the pair will slip further, with the initial goal at the 20-DMA around 1.1650.
GBPUSD stays relatively afloat above the 1.32 figure and the 20-DMA. The trading range is rather muted as traders refrain from action ahead of the widely expected BoE Governor’s scheduled speech. Investors hope that Carney will confirm the central bank’s intention to hike rates in August. However, he’ll hardly give clear signals about the regulator’s next step as the recent political turmoil could dampen the outlook for further tightening due to increasing Brexit uncertainty. Should the pound fail to receive a bullish boost from Carney, the bulls will be disappointed. So, the pair will likely continue to consolidate below the 1.33 figure in the nearest future.
USDJPY is changing hands close to 1.5-month highs reached yesterday. The pair regained the 111.00 threshold, despite the risk-off environment, which doesn’t fuel the yen demand this time. Such a dynamics shows that the greenback’s ongoing ascent could continue if the currency receives support from the upcoming US economic data and Fed officials’ comments. A daily close above the mentioned psychological level will open the way to fresh highs last seen in January. However, there is a risk of a partial downside correction later today after the current rally.
Crude oil prices are gaining the negative traction rapidly. Brent slipped from levels marginally below the $79 mark, down to lows around $76,75 ahead of the 20-DMA. The barrel initially declined following another tariffs threat from Trump due to increasing concerns over oil demand from China. Moreover, Libya announced the reopening of key oil export terminals, which added to the bearish sentiment dramatically. Profit taking is also partially explained by some signs of a potential relaxation of US sanctions in Iran, as Washington signaled it would consider requests from some countries to be exempt from sanctions and so will be allowed to continue buying Iranian oil. Brent is now attempting to recover above the $77 level in order to trim intraday losses. But the local sentiment looks too gloomy so far to allow for a more pronounce bounce from lows. The longer-term market prospects, however, remain positive due to risks to supply in the tightening market.
Gold prices have accelerated the decline after the recent rejection from highs above $1,265. The precious metal struggles to stage a corrective rebound above the $1,250 area, and as long as the price remains below this level, the downside risks remain quite high. The yellow metal needs a healthy bearish correction in the dollar across the board to make more sustained recovery attempts and get ack above the $1,300 figure.
Nathan Lambert, Head of Global FX Analytical Department