Following a dismal session in Asia, the European stocks are trading higher Wednesday, with Wall Street futures point to a rebound after yesterday’s sell-off. Despite the downside pressure has abated, global investors remain cautious and get increasingly concerned over the threat of a trade war. This prudence looks justified as Trump continues to aggressively deliver his "America First" campaign promises. The markets have mostly digested the firing of Secretary of State Rex Tillerson by now, but reports of a new set of hard tariffs on China makes investors stand on the sidelines. The European stocks received a local support from “dovish” comments by Draghi, who indicated the ECB’s commitment to bond-buying program which will continue as the underlying inflation in the euro area remains subdued. With that in mind, Germany’s DAX is up 0.57% to 12.291,22, French CAC 40 is trading 0.39% higher on the day, at 5.263,65, and Britain’s FTSE adds 0.48% to 7.172,84.
The greenback remains on the back-foot amid Trump’s protectionism, weak economic data and, as a result, fading Fed rate hike expectations. The currency attempted to shrug off its weakness earlier in Europe, but still can’t attract buyers amid the increasing political uncertainty in the White House. Meanwhile, the US retail sales surprised to the downside and unexpectedly contracted 0.1% MoM in February, also coming in below the initial estimates. However, the pair, which turned lower on Draghi speech and disappointing industrial production numbers, failed to appreciate post-US data and is probing fresh daily lows around 1.2350. The immediate support is now expected at 1.2340, where the 20-DMA lies. As long as the overall bearish tone around the USD remains, EURUSD’s downside potential is limited. The next key event risk for the single currency is the euro area CPI report due on Friday.
GBPUSD is trading flat, trying to climb back above the 20-DMA at 1.3970. Due to the lack of its own drivers, the pound relies on the general dollar’s tone. Though the negative USD pressure has abated a bit lately, it’s not enough to push the pair significantly lower as the British currency stays afloat amid lack of relevant Brexit news. On the other hand, there are now drivers that could send the price above the 1.40 level which keeps the bulls in control this month.
USDJPY is consolidating in relatively tight range trying to decide on further direction. The yen demand has faltered amid global stocks recovery and“dovish” Bank of Japan meeting minutes. However, following a spike towards the intermediate resistance around 106.75, the greenback is back to square one as investors’ cautiousness persists and the dollar lacks a meaningful catalyst. However, should the Wall Street show a rebound, the pair may return to the positive territory in the short term. Brent makes fresh attempts to climb back above the $65 threshold but struggles to attract demand ahead of the official stockpiles data. OPEC published its updated forecasts and raised 2018 non-OPEC supply estimates, which is almost entirely due to US shale. Now the cartel sees the non-OPEC supply growth at 1.66 mbpd this year compared to 1.40 mbpd prior. According to the report, the crude oil output in Venezuela hit long term low of 1.586 mbpd in February. The organization also indicated the demand remains a supportive factor for oil market rebalancing, as well as the OPEC-led supply cut deal. Despite some positive comments, Brent failed to appreciate as concerns over the shale boom re-emerged after the fresh estimates from the cartel. The immediate support is now at $64.40, while resistance lies in the $60.00-$60.20 region.
After failed bullish attempts during the Asian session, gold prices resumed the downside bias as a result of abating risk-off mood in the global stock markets. The yellow metal continues to attract sales on rallies and is now testing the $1.323 mark, -0.25% on the day. Following a flat previous week, the asset remains almost unchanged for the month, with intraday volatility spikes still look aggressive, reflecting the unstable environment in the global markets and in the geopolitical stage. In these circumstances the short-term trading strategies look risky, while longer-term bearish US dollar prospects count in favor of improvement in gold’s dynamics in the months ahead.
Nathan Lambert, Head of Global FX Analytical Departament