European stock markets mostly regain ground on Tuesday, though investors remain cautious. Turkey’s lira has stabilized after a massive sell-off and concerns over a spillover effect have eased somehow. The advance in the markets looks pretty modest as investors prefer to stay on the sidelines amid risks for the European banks stemming from Turkey. Meanwhile, trade war issues took a back seat at this stage, while Germany’s economy rebound by 0.5 per cent in the second quarter was welcomed by regional investors. As such, Britain’s FTSE 100 loses 0.21 per cent to 7,626, France’s CAC 40 recovers by just 0.03 per cent to 5,414, while German DAX 30 rises by 0.14 per cent to 12,376. US stock index futures look set to rebound amid tech stocks gain and a rebound in the Turkish lira.
The greenback is on the offensive again, though the bulls are not as aggressive as late last week. After a mild recovery on Monday, EURUSD lost the upside momentum and consolidates around the 1.14 figure. Euro zone economic data came in on a mixed note and haven’t affected the pair’s dynamics which still depends much on the sentiment around the dollar and the developments around the Turkish crisis. In the short-term, the price needs to stage a decisive corrective rebound above the 1.1430 intermediate resistance that limits bullish attempts this week. Considering the single currency is losing its allure because of the developments in Turkey and the rising dollar, the chances for a rise above 1.15 are low at this stage.
The pound struggles for direction as well. GBPUSD tried to recover above 1.28 and extended its local recovery to 1.2826, but faced offers and got under pressure again. Apart from the prevailing dollar demand, the British currency feels the additional pressure amid the lingering Brexit uncertainty. In another sign of a complicated situation within the divorce process, the UK foreign secretary said the risk of a no-deal Brexit has been increasing and that there is absolutely no guarantee that London will get a deal. In fact, there was nothing new in his statement, but it adds to discomfort and puts sterling under additional bearish pressure. As such, the pound is changing hands around the opening level of 1.2770, unable to stage a sustainable recovery above the 1.28 level which is the nearest hurdle for bulls, and the downside risks still prevail in the pair.
USDJPY continues to recover ground after a decline over the last week. The price is trying to regain the 111.00 threshold, but attempts look to shallow and modest so far to claim a sustainable rise down the road. The pair’s behavior confirms that investors remain alert as the sell-off in the global financial markets could resume at any moment and the yen demand may return quickly. As long as this risk persists, the pair’s upside potential will be limited. Only a daily close above the 111.20 area will improve the immediate technical outlook for the buck.
Brent crude has resumed the ascent after yesterday’s flat day. The price refreshed six-day high of $73.73 and is now testing the $73.50 area. A daily close above this region will confirm a break above $73. A relief for the crude oil markets came amid the receding risk-off tone in the global financial markets. The prospects of a substantial decline in crude oil output in Iran continue to support bullishness as well. On the other hand, there is a risk that shale oil production rose last week as the drilling activity increased sharply. In the short term, traders will focus on the API data, which if point to a decline in the US oil inventories, could give Brent the additional lift.