After the initial bullish attempts, European stocks turned negative as weak Chinese economic data set investors on a pessimistic path. Industrial production in May grew 5% year over year, lower than the 5.5% consensus and the lowest growth figure in more than 17 years. Fixed asset investment also disappointed, expanding 5.6% in January-May of the year versus 6% expected. The dismal figures sparked concerns over the state of the world’s second largest economy amid the ongoing trade tensions with the US. As a result, the regional indices declined on low trading volumes.
Against this backdrop, the UK’s FTSE 100 loses 0.53 per cent to 7329, Italy’s FTSE MIB sheds 0.34 per cent to 20,561, France’s CAC 40 declines by 0.51 percent to 5,348, while German DAX 30 loses 0.85 per cent to 12,066. US stock index futures are edging lower as well, pointing to a negative start of the session.
EURUSD remains on the defensive after failed attempts to settle above the 1.13 barrier earlier in the week. The euro is nursing losses for a third day in a row already and slipped to one-week lows in the 1.1250 area today. The common currency is under pressure as the safe-haven dollar demand prevails. On the other hand, as expectations of a rate cut by the Fed continue to build, the downside risks for the pair are limited at this stage. So, should the upcoming data from the US continue to disappoint, EURUSD could regain strength if the European fundamentals come on the positive side.
Technically, the short-term outlook for the pair has worsened after a break below the 100-DMA around 1.1270. A daily close below this level will send a bearish technical signal, while a rebound above 1.13 is needed to see a weaker selling pressure in the near term.
Crude oil prices are mostly flat on Friday as traders assess the contradictory signals in the market. Brent failed to get back above the $62 barrier and has settled marginally above the $61 handle after a brief dip below this level. On the negative side, the International Energy Agency cut its global oil demand growth forecast for a second straight month, to 1.2 million barrels a day from 1.3 million barrels a day the previous month. As a reminder, the Organization of the Petroleum Exporting Countries cut its forecast for growth in world oil demand yesterday.
On the other hand, the market is supported by geopolitics. U.S. Secretary of State, Mike Pompeo, accused Iran of orchestrating a series of attacks on tankers in the Strait of Hormuz to get the U.S. ease up on sanctions. In the short term, Brent will likely remain volatile, with downside risks persist.
Nathan Lambert, Head of Global FX Analytical Department