After the early bearish attempts, European stock markets have stabilized amid the easing China-US and Syria tensions. The Kremlin said Russia and the US are using a “deconfliction” telephone line for Syria, which gave investors a hope for peaceful settlement to this conflict. Meanwhile, the issue of trade tensions between China and US remains in the back seat so far. As such, Britain’s FTSE 100 is trading flat, at 7,257, France’s CAC 40 is up 0.25 per cent to 5,290 and German’s DAX 30 adds 0.59 per cent to 12,367. Wall Street stocks set to open sharply higher amid expectations of healthy corporate earnings. BlackRock Inc, which kicked off the Q1 earnings season, has already reported a better-than-expected profit.
In the currency markets, the greenback strengthens against the euro and yen but retreats against the pound. The EURUSD pair staged a corrective fall after failed attempts to challenge the psychological resistance of 1.24. The dollar demand reemerged as trade war fears and geopolitical risks receded. Additionally, the buck is supported by yesterday’s hawkish FOMC meeting minutes which highlighted the central bank’s readiness to hike rates further in the coming years, and probably in a more aggressive manner amid healthy economic growth and rising inflation. Nevertheless, the overall minutes’ impact on the dollar is rather muted as concerns over Trump’s external policy are still there. The euro dropped to two-day lows around the 1.23 mark, below which the pair could test the local support at 1.2280. However, the bearish potential still looks limited for the time being.
GBPUSD tried to recover above 1.42 after the morning dip but failed to preserve the bullish impetus and slipped back below the key level, though it remains mildly up on the day. The main obstacle for the pound which lacks bullishness to make a decisive break above 1.42 is the local dollar demand. However, the broader picture still point to the upside, and GBPUSD is finishing “green” the second week in a row. The pound will be attractive for opening long positions in case of a bearish correction as traders continue to price in a May rate hike by the BoE. In the short-term, sterling may regain the 1.42 figure, where the immediate resistance lies at 1.4220.
USDJPY dipped to 106.70 where it met support in the form of 14-DMA and recovered above the 107.00 threshold. Despite the easing trade and geopolitical concerns and the resurged dollar demand, the pair struggles to gain a more sustainable upside momentum. Such a behavior may be partly explained by the fact that traders still hesitate to sell the save haven yen as Trump’s twitter may bring a fresh portion of unexpected and ominous news. Meanwhile, the strong corporate earnings season, which kicked off today, may well support investors’ optimism and the greenback, preventing it from a dip below 106.00.
Brent crude is fighting for the $72 level after yesterday’s rally to more than three-year highs above $73. The prices seem to be losing some bullish momentum amid the overbought conditions and easing Middle East tensions which fuelled the recent upside wave in commodities. OPEC reported that the group’s total crude output declined by 201,000 barrels a day last month, to average 31.96 million barrels a day. Meanwhile, the world’s total oil supply rose by 180,000 barrels a day in March, as non-OPEC producers – particularly the US – continued to ramp up production. The geopolitical background remains the key driver for the crude markets for now, and any further signs of ebbing worries on this front will likely put downside pressure on Brent which seems to be ready for a technical downside correction.
Gold retreats from 2 1/2-month high of $1,365 as Syria tensions ease. In fact, the reversal began late yesterday, after the release of hawkish FOMC meeting minutes. Today in Europe, the buck regained the upside impetus which depresses the yellow metal, losing 0.76% on the day. So far, spot gold manages to hold above the $1.340 mark. Should the price fail to stage a rebound from here, it may dip further, to $1,336.50 in the short-term.
Nathan Lambert, Head of Global FX Analytical Departament