European stocks continued their ascent early in the session on Thursday but turned mixed later as investor optimism on US-China trade progress seems to be abating gradually as the markets need to see further progress and signs of cooling trade tensions between the two countries. China made the first big US soybean purchase of over 1.5 million tonnes in a sign that Beijing carries out its promise to the US government made during the meeting of Trump and Xi on December 1. There are also some hopes for resolving the European issues, with focus is still on Brexit developments and Italy’s budget. The Italian government presented a revises budget plan to the European Commission with a deficit target around 2%, down from the initial goal of 2.4%. However, it is far from certain that Brussels will approve the updated plan as the officials may demand more aggressive spending cuts. So far, German DAX 30 adds0.03% to 10,932, Italy’s FTSE MIB rises by 0.31 per cent to 19,004, Britain’s FTSE 100 sheds 0.11 per cent to 6,872, while France’s CAC 40 slips by a mere 0.03 per cent to 4,906. Meanwhile, US stock index futures are slightly higher before the official open.
The dollar trading is mixed today, with European currencies are rising amid investor optimism on Italy and Brexit. The buck fails to attract a more sustained demand against the backdrop of the prevailing risk-on sentiment. Yesterday’s weak US CPI data don’t add to USD’s optimism as well. Now, the focus shifts to the US retail sale report due on Friday. Should the figures come in lower than expected and point to slowing consumer demand, investors will further pull back their expectations of the Fed rate hikes in 2019. By the way, the upcoming FOMC meeting due next Wednesday will be the key event for the buck as the central bank could express a more ‘dovish’ tone and thus derail the remaining attractiveness of the dollar. Another risk factor for the US currency is further warming in US-China trade relations as well as positive developments in Europe.
EURUSD is trading marginally higher on the day but still lacks the impetus to make a clear break above the 1.14 barrier. This is the immediate resistance that is standing on the way to the key upside hurdle at 1.15. Further euro dynamics in the short term will depend on the ECB meeting outcome and Draghi’s tone during the press-conference. In the longer term, traders will continue to closely monitor the developments in Italy, France and the UK. By the way, Theresa May survived a no-confidence vote.
Today, she meets with European leaders and will try to convince them to give her legally enforceable guarantees surrounding the Irish backstop. The uncertainty around this event caps the pound’s upside potential at the moment. As such, GBPUSD jumped to 1.2685 earlier but was rejected from daily lows and retreated partially, down to the 1.2650 area. Despite the current recovery, downside risks for the euro and sterling remain.
Crude oil prices turned lower again, after another failed attempt to attract buying interest above $60. The market struggles to find a reason for optimism as the new OPEC+ deal doesn’t suggest that the global market will get balanced any time soon. Moreover, investors continue to expect further increase in the US shale output. In the absence of strong internal supportive factors in the oil market, Brent struggles to attract demand despite the risk-on sentiment globally and signs of easing trading tensions between the US and China. In the short term, prices will likely further attract sellers on rallies attempts unless the market receives a bullish boost.
Nathan Lambert, Head of Global FX Analytical Department