European equity markets are trading marginally higher on Thursday, shrugging off losses in Asia and the ongoing geopolitical tensions, mainly due to a strong recovery in oil prices after s deep sell-off yesterday. On Wednesday, Trump threatened to increase tariffs on Chinese goods if no deal is agreed, though struck a slightly more positive tone on the trade war in general. Elsewhere, U.K. lawmakers rejected the main opposition Labour party’s bid to block a no-deal Brexit by seizing control of the parliamentary agenda from the government.
Against this backdrop, the UK’s FTSE 100 adds 0.17 per cent to 7380, Italy’s FTSE MIB rises by 0.73 per cent to 20,612, France’s CAC 40 is up 0.001 percent to 5,475, while German DAX 30 adds 0.54 per cent to 12,180. US stock index futures are rising as well, signaling the resumption of this month's rally.
EURUSD is marginally higher after a dip yesterday. The downside pressure on the common currency has eased partially but the pair still struggles to settle above the 1.13 barrier as the greenback remains relatively steady despite growing expectations of a rate cut by the Federal Reserve. In part, this is due the unstable risk sentiment, which supports the safe-haven dollar demand.
On the data front, the Eurozone industrial production declined 0.5 percent month-on-month in April, following a 0.4 percent fall in March. This was in line with economists’ expectation but at the same time, production fell at the fastest rate in four months. On a year-on-year basis, industrial production fell 0.4 percent in April, following a 0.7 percent decline in the previous month. The data added to the worries about the state of the regional economy and capped the euro’s bullish attempts. From the technical point of view, EURUSD is stuck between the 100- and 200-DMAs and as long as the prices remain in this channel, the sentiment towards the euro is neutral.
USDJPY continues to tread water around 108.50, staying marginally above the 108.00 support level. After a slight risk aversion, investor sentiment has improved somehow but it’s not enough to fuel dollar demand ahead of the important US retail sales report due tomorrow. Traders fear that if the numbers come on the negative side, the release will become another argument for the Fed to cut rates soon. In this case, the greenback will come under a broad-based selling pressure as market participants haven’t yet fully priced in a shift to a soft stance by the Fed.
Brent crude surged after yesterday’s plunge and recovered by over 3% amid the reports that two oil tankers had been attacked in the Gulf of Oman, with fresh tensions in that region potentially posing a threat to global supplies. Earlier, the prices plunged after a report showing U.S. crude inventories climbed for a second week in a row. Worries about energy demand on the back of growing U.S.-China trade tensions added to the selling pressure. In part, the current rebound shows that yesterday’s sell-off was unjustified. Anyway, the market remains highly volatile, and traders continue to closely follow the developments in geopolitics.
Nathan Lambert, Head of Global FX Analytical Department