European stock markets continue to appreciate on Friday, albeit the gains are limited by the persistent trade war jitters. Tech stocks lead the rise as in the US, where the Nasdaq Composite jumped to all-time highs due to a rise in tech giants. Beijing promised to hit back against Washington after Trump announced another portion of tariffs and now global investors try to guess, how the retaliatory measures from China will look like. Beijing didn’t give any details over its next steps, which allowed some relief in the markets and gave a hope that the two countries could restart negotiations to avoid escalation of the trade war. Therefore, Britain’s FTSE 100 adds 0.36 per cent to 7,679, France’s CAC 40 gains 0.41 per cent to 5,428, while German DAX 30 rises by 0.50 per cent to 12,554. US stock index futures struggle for direction ahead of the second-quarter earnings.
The dollar is on the rise across the board, fuelled by trade war fears and by the prospects for further Fed tightening. EURUSD dropped to a low marginally above 1.16 before staging a modest recovery. Nevertheless, the pair remains below the 20-DMA, so the downside risks persist in the short term. The main source of a bearish pressure on the euro is the dollar demand as the US currency remains attractive against the backdrop of developments around the US-China trade war. The additional and longer term negative factor for the single currency is the ECB and Fed monetary policy divergence which seems to be widening as the Federal Reserve confirms its commitment to further tightening, while the European central bank could put aside the first rate hike indefinitely due to the risks for the euro zone economy from negative global trade developments. In the short term, the price needs to get back above the mentioned moving average around 1.1650 to avoid challenging the 1.16 psychological support.
GBPUSD has been on the defensive either. The pound slipped to the 1.31 area where the price faced some bids and partially recovered to 1.3160. Apart from USD bullishness, pound weakness was triggered by Trump’s comments on Brexit during his first official visit to the UK. In particular, the US leader highlighted that PM Theresa May’s plan for a soft Brexit could kill the prospects of any new deal with the US. The current recovery attempts need a more sustained impetus to open the way to 1.32 level, where the 20-DMA lies. As the dust settles following the Trump-May meeting, the pair could stage a corrective rebound, as the Bank of England seems to remain on the path for a rate hike in August.
USDJPY refreshed six-month highs at 112.80 earlier in the day, but has retraced to opening levels since then and fails to resume the ascent as it’s getting more difficult for the buck to attract demand at the current high levels after a spectacular rally this week. However, the pair remains bid around 111.50 and still poised to challenge the 113.00 barrier should the USD index stay afloat down the road. The next key resistance comes at 113.40, where the 2018 highs lie. From a technical perspective, there is a risk of profit-taking in the short term due to overbought conditions. On the other hand, a strong rally above the 112.00 key level signals the dollar’s commitment to further gains in the longer term.
Brent crude traded lower earlier in the day, with the price slipped to the $73.20 region, before found bids and jumped above $74, to the $74,50 area. Despite the sentiment in the industry has worsened significantly during this week, the buying interest on dips signals that the bulls are still in the game. The supply-demand prospects have really deteriorated amid the trade war, threatening to derail global demand, the resuming oil output in a key oil field in Libya, as well as amid the potential softening of the Washington’s stance on Iranian crude oil exports. All these factors drive the market sentiment and the prices lower. However, with the global market is tight, the longer term picture remains quite bullish, so the current correction could be an opportunity to open fresh longs for Brent.
Nathan Lambert, Head of Global FX Analytical Department