European markets are extending gains of the previous session on Wednesday as
optimism about US-China trade talks continues to lift investor sentiment. Earlier today, the US President Donald Trump highlighted he was upbeat about the chances of securing a trade deal with Beijing. However, market participants will likely tread a rather cautious approach amid speculations about the possible no-confidence vote in May's leadership from members of her own Conservative party in the evening evening. As such, German DAX 30 adds 0.91% to 10,878, Italy’s FTSE MIB rises by 0.94 per cent to 18,767, Britain’s FTSE 100 gains 1.23 per cent to 6,890, while France’s CAC 40 rises by 1.64 per cent to 4,885. Meanwhile, US stock index futures jumped before the opening bell, also cheering Trump’s rhetoric on trade.
The dollar is mixed today, declining marginally against the European currencies while continuing the ascent against the Japanese yen amid positive risk trends globally. While focusing on trade talks, traders are gradually shifting to the upcoming ECB meeting due tomorrow. The central bank is widely expected to end the asset purchase program and leave the key rate unchanged. By the way, there is a risk that the regulator will revise its growth and inflation forecasts marginally lower, citing the increasing signs of slowing growth in the euro zone as well as political crisis in Europe. Should the ECB rhetoric turn out ‘dovish’, market expectations on the first rate hike will ebb further, which could increase the selling pressure on the single currency. Technically, EURUSD still needs to firmly regain the 1.15 barrier in order to avoid a decline below the support at 1.13.
USDJPY is marching north for a third day in a row, though the upside impetus has eased after an aggressive rally on Monday. The pair refreshed one-week highs around 113.50 and continues to target the 114.00 barrier. But considering the unstable nature of investor sentiment in the global financial markets and dollar vulnerability to profit-taking, it’s too early to claim victory at this stage as the pair will quickly lose the impulse should the risk trends change. From the technical perspective, the greenback needs some additional impetus or driver to challenge the 114.00 level for the first time since late-November.
Crude oil prices continue a shy and unsustainable rebound, trying to cling to the $61 level on Wednesday. The bullish API report that pointed to a decline in crude inventories by over 10 million barrels, failed to inspire buyers. Such a behavior confirms that market participants continue to assess the latest OPEC+ deal and its potential efficiency. As there are a lot of doubts in the updated agreement, including the potential cheating by some group members, the upside potential remains limited, while the bearish risks are still there. So the $60 figure could yet be challenged in the days to come.
Gold prices are making shallow recovery attempts after two days of a bearish correction from the highs around $1,250. The yellow metal has settled above the $1,240 area and still set for further gains as long as this level holds. It is possible that gold will struggle to refresh recent highs in the days to come should the greenback refrain from a significant downside correction. At the same time, the bearish potential looks limited as well because investor confidence in the precious metal is getting stronger. In the longer term, the potential dollar’s decline could play into the bullion’s hands if the Fed alters its tightening path next year.
Nathan Lambert, Head of Global FX Analytical Department