European stocks are trading in a positive territory on Thursday, consolidating decent losses nursed yesterday, when Trump rattled global investors by another tariff threat. As concerns abate, buyers reenter the market at more attractive losses. However, the trade spat remains in market focus as China has warned it could take further retaliatory measures against US tariffs. Meanwhile, FTSE 100 adds 0.90 per cent to 7,660, France’s CAC 40 gains 0.82 per cent to 5,397, while German DAX 30 rises by 0.58 per cent to 12,488. US stock index futures indicate a higher open as investors shift focus to earnings.
US CPI for June came out mixed. The headline monthly figure was lower than expected, at 0.1% vs. 0.2% expected, while core CPI YoY came out as expected. Real average weekly earnings disappointed at 0.2% YoY vs. 0.3% prior. Generally, the release is rather neutral and doesn’t assume any changes to Fed tightening path and its strategy. By the way, prior to the report, Fed’s Nester said that strong economy justifies two more rate hikes this year. So, after the inflation data, the greenback has trimmed intraday gains only marginally, with the broader demand for the US currency remains in place.
EURUSD has recovered to opening levels from one-week lows around 1.1650, where the 20-DMA lies. Still. The pair lacks impetus to regain the 1.17 level despite the USD buying pressure gas eased after inflation data. The ECB meeting minutes added to market uncertainty over the prospects of tightening in euro zone. The central bank said it’s prudent to leave end of QE conditional on incoming data. It means that the euro will be reacting quite lively to fresh economic statistics down the road. The regulator also emphasized the open-ended character of interest rate guidance, which signals that end of QE is not at the end of this year is no done deal just yet. Therefore, in the context of monetary policy divergence, the single currency remains in the back seat, so the bearish trend in EURUSD will likely remain in place, at least in the medium term.
Meanwhile, USDJPY jumped to fresh six-month highs of 112.62, before has retreated partially following the US CPI release. The pair has been steadily rising for a fourth day in a row, with the technical outlook has further improved after a rise above the 112.00 threshold. Against the backdrop of recent risk-off sentiment, the greenback looks even more attractive than its Japanese rival, despite the yen is considered as a traditional safe-haven currency. This is partly because the US economy and currency are probably better positioned to withstand the potential consequences of a full-scale global trade war. Therefore, despite the buck looks overbought at current levels, the pair could well extend gains down the road and to challenge the 114.00 next psychological level.
Brent crude propped dramatically on Wednesday, with price has reached a low of $73. Today, the barrel makes some recovery attempts, but the impetus looks too weak and inconclusive as the asset remains below the $75 area, threatening the $74 level again. Crude price crashed 7% after the news that Libya starts ramping up oil supply. Escalation of US-China trade row added to the downside pressure as well. Traders concern over the prospects of global demand which could drop amid the trade war. Uncertainty over the extent of US sanctions on Iranian oil exports also unnerves investors. As a result, Brent fell victim of a massive profit-taking and fails to attract buying pressure despite attractive levels. In the short term, the price needs to keep above the $74 figure to avoid another sell-off.
Gold price licks wounds after another wave of selling pressure which brought the asset back below the $1,250 region. The yellow metal received support above $1,240, but unable to regain ground on Thursday as dollar demand persists. Spot gold remains in a deep bearish trend and could refresh recent lows below $1,238 should dollar bulls continue their attack. On the upside, the $1,265 area is the key for buyers as a rebound above this level will partially ease the downside pressure.
Nathan Lambert, Head of Global FX Analytical Department