European markets turned into a recovery mode on Tuesday after hitting two-month lows a day earlier as global sentiment improves amid positive comments from the US and China. Trump said he was optimistic about resolving the trade dispute, while a China diplomat also sounded confident about a possible deal, which helped to ease concerns over the ongoing trade war. However, the optimism remains cautious after Beijing retaliated yesterday with its own tariffs on US goods. By the way, since the start of this month, the STOXX 600 is down more than 4%, set for its biggest one-month fall since December. Meanwhile, the UK FTSE 100 adds 0.84 per cent to 7,224, France’s CAC 40 is up 1.05 percent to 5,318, while German DAX 30 rises by 0.46 per cent to 11,931. US stock index futures also point to a positive open as trade fears are easing further.
EURUSD turned green on Tuesday after a slide yesterday, caused by a massive risk aversion across the global markets. The pair still struggles to overcome resistance in the 1.1260 area and has settled in a limited range. Staying above 1.12. The economic data failed to inspire investors as ZEW survey showed the assessment for current conditions in Germany improved, while the outlook dipped back into negative territory, signaling that there is still much to be worried about. ZEW noted that the most recent escalation in US-China trade tensions has increased uncertainty regarding German exports again. Meanwhile, euro zone industrial production fell by 0.3% in March after a decline in February and a strong reading in January. German inflation data came in line with market expectations and didn’t affect the pair. In the short term, the euro needs to stay above the 1.12 handle in order to escape losses. However, the upside potential is limited for now as traders remain cautious against the backdrop of the lingering trade tensions.
The pound extends losses and dipped to fresh May lows at 1.2922. GBPUSD is in a steady decline since May 6 and remains under the selling pressure on Tuesday. The UK labor market data was mixed. The unemployment rate improved to another multi-decade low of 3.8%, but wage growth slowed slightly to 3.2% y/y for headline wage growth, while the ex-bonus measure slowed to 3.3% y/y and the important private sector regular pay measure slowed to 3.5% y/y. by the way, the decline in the unemployment rate came entirely from a sharp reduction in the number of people looking for work. So the numbers did little to help the cable, though the pair still holds above the 1.29 level.
Brent crude regained the positive momentum on Tuesday after an aggressive profit-taking yesterday, witnessed amid a broad sell-off in the global stock markets. The prices are back targeting the $71 handle but the dynamics in general looks mixed as tensions in the Gulf appeared to stop short of a military showdown and both sides in the US-China trade talks sounded upbeat. Technically, Brent needs to see a firm recovery above $71 in order to register more gains. In the short term, sentiment in commodities will depend on the trade developments as well as on the API data due later today.
Nathan Lambert, Head of Global FX Analytical Department