Investor sentiment continues to deteriorate globally on Friday, with European stock markets are further losing ground after a short-term rebound earlier this week. The growing fears over global growth have overshadowed the optimism surrounding further de-escalation in the US-China trade tensions. Concerns increased after a series of weaker-than-expected economic reports from China. Beijing promised to lift retaliatory tariffs on US cars from 1 January for three months – tariffs will fall back to 15% from 40% earlier. In Europe, the auto shares lead the decline, with all major indexes are trading in the negative territory. In particular, German DAX 30 sheds 1.19% to 10,794, Italy’s FTSE MIB loses 1.26 per cent to 18,809, Britain’s FTSE 100 declines by 0.93 per cent to 6,813, while France’s CAC 40 slips by 1.04 per cent to 4,846. US stock index futures are trading lower as well.
Yesterday’s ‘dovish’ tone by Draghi send the euro lower, and the currency has accelerated its decline on Friday after the dismal PMIs from Germany and euro zone confirmed the slowing economic activity in the region. By the way, today, Bundesbank has cut its 2018 and 2019 Gernam GDP and inflation forecasts. The additional selling pressure came from ECB Vasiliauskas comments as he also pointed to the risks that are tilted to the negative side. As such, the ECB rate hike for next year is slowly being priced out as the latest economic reports warrant for an even more cautious approach and could even make the central bank adjust its forward guidance next year. Against this backdrop, EURUSD derailed the 1.13 support for the first time since late-November and reached the low of 1.1285, where it has found bids but still struggles to firmly get back above the important 1.13 level. Should the dollar demand pick up further, the pair could close the day below this barrier.
USDJPY is trading in a mixed manner on Friday, switching between gains and losses. The pair failed to challenge the 113.65 area in Asia and slipped to daily low of 113.40, from where the price has partially recovered. On the one hand, the yen demand has risen amid the worsening investor sentiment. On the other hand, the dollar demand looks fairly robust as traders are gradually shifting focus to the FOMC meeting due next week. It is expected that the Federal Reserve will hike the key interest rate on Wednesday – for the fourth time this year. The risk for the greenback is the potential signal about a pause in tightening next year. Should the risk aversion intensify further, the pair will remain under pressure but will likely stay above the 113.00 support in the short term.
Brent crude is back under s selling pressure, after another failed attempt to rise towards $62. The price is trading barely above the $61 handle and the key $60 level could be tested once again as the market doesn’t see any positive drivers and continues to digest the OPEC+ deal that didn’t impress investors. The general risk aversion adds to the bearish pressure in commodities. Next week, traders will continue to expect some bullish signals that could come from the US data if the API and IEA reports point to a substantial decline in inventories and shale oil output. Technically, Brent needs to overcome the $62 barrier to show a more robust and sustainable recovery from the current levels.
Nathan Lambert, Head of Global FX Analytical Department