European markets lose ground Friday after yesterday’s rally fueled by the dovish ECB tone. Apart from a pause after the recent rise, the pressure on the regional shares comes from a new wave of trade-war worries as the White House plans to announce a new list of tariffs against China. Bank stocks are leading the losses as the sector got under pressure after the ECB said the interest rates will remain at their present levels at least through the summer of 2019. As such, Britain’s FTSE 100 sheds 1.06 per cent to 7,683, France’s CAC 40 loses just 0.06 per cent to 5,528, while German DAX 30 drops by by 0.52 per cent to 13,039. US stock index futures are expected to tumble at the open on renewed trade-war concerns.
The greenback retreats slightly on Friday but remains firm after hawkish Fed and strong retail sales data. The current correction is mainly technical and the downside pressure looks rather limited. Lack of further upside momentum in USD is partly due to the trade tariffs theme which has resumed after Trump announced steep tariffs on Chinese goods, while Beijing promised to retaliate in kind to any duties. In this environment, traders could shift focus to geopolitics again, which is negative for the buck. But as soon as the dust settles, monetary policy will take the central stage again and this will push the dollar north.
EURUSD make timid recovery attempts following yesterday’s sell off after the dovish ECB meeting results. Draghi was traditionally cautions, but this time, the market hoped for a bolder rhetoric, citing the recent positive signals from a number of central bank officials. The pair now struggles to get back above 1.16 despite the greenback is losing ground and the euro area economic data came in on a stronger side. In particular, CPI was in line with expectations and labor costs increased by 2.0% vs. 1.9% expected. Should the bullish pressure in the greenback resume during the New-York session, the pair could challenge recent lows in the 1.1540 area. On the upside, the 1.17 remains key for the euro bulls.
USDJPY struggles for direction Friday, with the price refreshed May 23 highs earlier in the day marginally below the 111.00 figure. This level continues to attract profit taking, though the overall picture in the pair looks quite positive, especially in the weekly charts. The Bank of Japan left monetary policy unchanged today and has downgraded its assessment of inflation – now the central bank sees CPI in a range of 0.5-1%. However, the meeting results failed to surprise traders as nobody expects any hints on tightening in Japan due to stubbornly low consumer prices. After a retreat to 110.40, the greenback has resumed the ascent but faced resistance once again. The pair is unlikely to challenge the key 111.000 mark any time soon as trade war concerns may yet intensify.
Brent has derailed the $75 mark for the first time in nine days. The negative sentiment in the oil market has intensified after yesterday’s comments by the Saudi Arabia oil minister who said it’s “inevitable” that OPEC and its allies will agree to boost oil output gradually. Brent set for second weekly decline ahead of the key OPEC+ summit next week in Vienna. It looks like the market participants are ready to drive crude prices even lower in order to reduce exposure before the cartel and its allies deliver their verdict. Prices attempt to cling the $75 figure during the European trading but the downside risks still persist, and Brent still could lose the psychological level today. The additional bearish pressure may come from Baker Hughes report should it reflect further rise in the drilling activity in the US.
Spot gold continues to lose ground after two days of recovery. The price reached a local peak marginally below $1,310 yesterday and since struggles to regain the bullish momentum. Such a dynamics confirms that the latest rebound was local, and the bearish trend is firmly in place. The precious metal dropped below the $1,300 once again despite the dollar rally shows signs of exhaustion on Friday. The US currency retreats mildly across the board but remains elevated in a broader picture due to recent hawkish rate outlook from the Fed. A more aggressive stance by FOMC could worsen longer-term prospects for gold even as it looks oversold since last month. In the short-term, the precious metal needs to get back above the $1,295 area in order to avoid further losses.
Nathan Lambert, Head of Global FX Analytical Department