Asian stock markets clawed back some ground following Wall Street rebound, which gave way to an uptick in European indices on Thursday. Investors received a respite and seem to take no news as good news amid the heightened global uncertainty. While trade war fears remain, there is another potential source of concern for markets. This is the emerging “Cold War II” between UK and Russia. Moscow has already promised to soon expel the British diplomats in retaliation to London’s decision to kick out 23 Russian envoys over a chemical attack on a former Russian double agent. This “tit for tat” game between the two countries will hardly fade away soon and could significantly contribute to the existing stressful environment over the globe. However, so far it’s only the Britain’s FTSE 100 that is feeling the mild pressure from this front, trading flat on the day, at 7.133,57. Meanwhile, the other major European indices enjoy a timid rebound: Germany’s DAX is up 0.22% to 12.264,30 and French CAC 40 is adding 0.13% to 5.239,75.
In the currency markets, the greenback is trading in a modest recovery mode against the European currencies. The EURUSD pair is extending its correction from yesterday’s highs above 1.24, flirting with fresh daily lows around the 20-DMA at 1.2340. The single currency continues to digest the dovish Draghi’s tone, while the USD rebound adds to the bearish pressure. The greenback received some support from fresh US second-tier economic data. The Empire Fed manufacturing index climbed to 22.5 in March, while seasonally adjusted initial claims decreased 4,000 to 226,000 as expected. Despite the euro’s bearish potential remains limited on the back of risks for dollar from Trump Administration, tomorrow’s eurozone CPI report may put the pair under additional pressure, should the numbers disappoint the bulls.
After another failed attempt to break above the 1.40 psychological mark, GBPUSD retreated to fresh daily lows around 1.3920. The dollar rebound is still capped by lingering concerns over a trade war, which restrains the pair’s bearish potential. However, the downside pressure may intensify, if Russia-UK diplomatic conflict over the “Skripal case” escalates. As long as the price remains above the 1.39 level, the short-term pound’s tone is neutral. On the other hand, a sustained break past 1.40 is necessary for alleviating the immediate bearish pressure.
USDJPY struggles around fresh one-week lows after a break below the 106.00 threshold. After the US economic data release, the pressure has abated, and the greenback makes new attempts to regain this level. The risk-off mode has somehow abated, but investors remain alert and cautious, which supports demand for the Japanese yen as a safe-haven. Considering the remaining protectionism risks from Trump and the emerging Russian-British conflict, the pair will likely continue to fall the victim of a rush for safe assets and attract sales on shallow rallies. A daily close below the 106.00 mark will signal deterioration of the short-term technical picture.
In the oil market, Brent continues to struggle for the $65 level, inching higher after earlier losses. In order to confirm the break of this mark, the price is yet to close above the 20-DMA at $65.20. Oil has steadied on the back of global equities recovery. In its traditional report, the International Energy Agency noted that global oil demand will likely pick up this year but supply is growing at a faster pace. The remark on the supply side has limited the bullish attempts, which signals a risk of another downside retreat in the short term. There are no any meaningful drivers that could support Brent demand, and chances for a sustained recovery a low at this stage. Therefore, until the end of the trading week prices will likely continue to oscillate around the $65 level at best. Gold prices are lower on Thursday, extending the yesterday’s retreat on the back of a bit firmer USD index. The absence of visible risk aversion also plays against the safe haven yellow metal. The price broke below the $1.320 level and extended its intraday decline to $1.317,78 so far, -0.5% on the day. The US futures point to a positive opening for Wall Street, which limits the short-term recovery potential for gold. However, should the USD bears return to the market, the metal may have a chance to climb back above $1.320.
Nathan Lambert, Head of Global FX Analytical Departament