European stock markets started the day on a mostly positive note, but failed to preserve gains and turned red afterwards as the risk-off sentiment reemerged. Trade war concerns came into investor focus again amid the reports that China is set to ask the WTO to for permission to impose sanctions on the US, citing Washington's non-compliance with a ruling in a dispute over US dumping duties. Inventors took these headlines as a sign of further escalation of a trade conflict between the two countries. As such, Britain’s FTSE 100 loses 0.69 per sent to 7,229, France’s CAC 40 sheds 0.37 per cent to 5,250, while German DAX 30 declines by 0.69 per cent to 11,903. US stock index futures set for an open lower as investors amid global trade worries.
The dollar turned positive on the day as risk sentiment has changed for worse. EURUSD slipped from highs just below 1.1650 and got back below the 1.16 threshold even as the ZEW German and euro zone data came in substantially better than expected. On the one hand, the downside pressure is limited amid expectations of resolving budget issues in Italy. But the dollar demand could derail the latest ascent in the euro. Moreover, traders may opt to stay on the sidelines ahead of the ECB meeting on Thursday, which could cap the recovery attempts in the near team. From the technical perspective, the pair needs to firmly regain the 1.16 threshold to avoid a deeper retreat. Meanwhile, a break below the 20-DMA at 1.1570 will open the way towards 1.15.
GBPUSD retreats dramatically on the trade-related headlines after yesterday’s rally following some positive Brexit comments by EU’s Barnier. The pair reached early-August highs just below the 1.31 figure earlier and thus has attracted a more aggressive profit-taking amid dollar recovery on trade-war fears. Such a behavior confirms sterling’s vulnerability to global risk trends as they seem to drive the currency more that Brexit developments and economic data. By the way, the UK wages rose more than expected in August, but the release failed to cap the pound’s decline. The price slipped below 1.30, but will likely stay above the 20-DMA in the short term, being somehow supported by expectations of further progress in the negotiations with the EU and some “hawkish” comments from the Bank of England’s Carney during the meeting on Thursday.
Brent crude keeps trading with a bullish bias but lacks momentum to stage a more decisive recovery as the $78 level caps the buyers so far. The internal market factors remain mostly positive, with further signs of declining oil imports from Iran keep prices afloat. But the global trade worries still cap the upside potential as concerns over the outlook for demand persist. The API will release its fresh weekly inventory data later today. Should the crude oil stockpiles show a decent decline in stockpiles, Brent could receive a short-term impetus to make another breakthrough and overcome the $78 figure. However, a rally above $80 is unlikely at this stage as trade tensions between the US and China are set to escalate rather sooner than later.
Gold prices remain under pressure, with latest recovery attempts have attracted more sellers around the $1,197 region. The yellow metal still faces a strong local resistance of $1,200 after it was rejected from lows above $1,206 last week. Despite the dollar was trading mixed these days, the bullion failed to stage any sustainable recovery which confirms the fragile positions of the metal. It needs to see a significant selling pressure on the greenback, with a possible challenge to the ongoing bullish trend, to show a more convincing ascent from the current levels.
Nathan Lambert, Head of Global FX Analytical Department