European stocks shifted to a recovery mode on Friday after an earlier dip amid weak economic data from the US and China. US retail sales dropped in December to their lowest since 2009, while Chinese producer prices, declined for a seventh straight month. Dynamics in the regional assets also reflects some nervousness among investors due to a lack of details from the US-China trade negotiations. And no decision has been taken to extend a March 1 deadline for a deal.
As such, Britain’s FTSE 100 adds 0.44 per cent to 7,228, France’s CAC 40 is up 0.96% to 5,111, while German DAX 30 rises by 0.57 per cent to 11,153. US stock index futures are trading marginally higher as sentiment gradually recovers after a dismal retail sales report.
The dollar is trading in a mixed manner on Friday. EURUSD remains under pressure below 1.13 after yesterday’s gains amid the greenback weakness following a disappointing report. Investor expectations from the negotiations in Beijing have moderated somehow, which is driving the common currency lower and give support to the dollar at the same time.
In a wider picture, the euro came under an aggressive pressure amid rising concerns over the health of the regional economy and speculations that the ECB could refrain from hiking rates this year. The political landscape adds to the negative pressure as we get closer to the EU parliamentary elections. Technically, the selling pressure could abate partially should the pair recovers above the 1.12 handle.
The pound turned positive due to strong retail sales data which rose unexpectedly by 1.0% in January after falling sharply in the previous month. GBPUSD jumped above 1.28 and remains elevated though the upside potential is obviously limited by lingering Brexit concerns.
The UK Prime Minister suffered another defeat in the House of Common yesterday as the officials voted against a motion resolving the Brexit deadlock. The pressure from this front receded somewhat after the UK Secretary of State Andrea Leadsom said that the government is determined to keep a no-deal Brexit possibility off the table.
USDJPY is trading unchanged for the day after a brief dip to a low of 110.25. The pair has settled around 110.50 and struggles for direction amid mixed investor sentiment. Should the risk-on tone improve on the potentially positive headlines from Beijing, the dollar could target the 111.00 barrier again. Otherwise, the price could get lower again and even challenge the 110.00 support.
Brent extends the rally, trying to break above the $65 level on Friday. The market is supported by Saudi Arabia and OPEC production cuts, hopes of a progress towards a deal between the US and China, and abating concerns over global oversupply. On the other hand, the bullish impetus will likely be limited from here as worries over the health of the global economy and this weakening demand continue to cap the bullish tone on the market.
Nathan Lambert, Head of Global FX Analytical Department