After U.S. Treasury Secretary Steven Mnuchin said that Washington would maintain tariffs on Chinese goods after the phase one deal is signed, investors got disappointed, which is reflected in mostly negative dynamics in the European stocks following a decline in Asian markets on Wednesday. In general, the regional markets now struggle for direction ahead of the official ceremony of signing a deal due later today. On the data front, German gross domestic product grew 0.6% in 2019, versus +1.5% in 2018 and +0.5% expected.
Against this backdrop, UK’s FTSE 100 adds just 0.07 per cent to 7,628, Italy’s FTSE MIB loses 0.41 per cent to 23,830, France’s CAC 40 declines by 0.13 per cent to 6,033, while German DAX 30 loses 0.08 per cent to 13,445. U.S. stock index futures point to a lower open on signs of concerns over the trade issues that will remain between the US and China after the signing of a partial deal. Also, investors are cautious as the corporate earnings season starts in the United States.
In currencies, EUEUSD managed to break above the 200-DMA and extended gains to the 1.1155 area amid a broad weakness in dollar demand. Still, the pair is yet to confirm this breakout at least on a daily basis as the current upside momentum could be unsustainable. Besides, risk sentiment is subdued, which could prevent the common currency from further gains in the near term. Moreover, traders may shift to profit taking after the signing of a deal. In this scenario, the common currency may lose the upside impetus and retreat back below the mentioned moving average. Otherwise, a daily close above 1.1150 ill signal the possibility of moving towards 1.12 next.
GBPUSD is nearly flat on Wednesday after failed attempts to overcome the 1.3040 area. Should the pair overcome this intermediate resistance any time soon, the key 1.31 level will come back into market focus. The economic data out of the UK was mostly disappointing, with both CPI and PPI came in lower than expected. Weak numbers coupled with the prevailing risk aversion make the pair struggle around the opening levels, with the possibility of a daily close below 1.30 is high at the moment.
Meanwhile, Brent crude is holding above the $64 handle, challenging the $64.60 intermediate resistance on the way to $65. While the futures are holding above the 200-daily moving average, downside risks are limited. Further on, much will depend on the EIA report on crude oil inventories and the details of the preliminary trade deal due to be signed later today. The $64 level remains im focus this week.
Nathan Lambert, Head of Global FX Analytical Department