After a sharp drop at the start of the session, European stock markets trimmed intraday losses but remained on the defensive on Monday. Equities dipped to three-week lows as coronavirus-related concerns picked up again. More than 20 U.S. states are seeing a pick-up in cases while China also reports spreading which fueled worries about the resurgence of the pandemic and the outlook for the economic recovery.
China released industrial production and retail sales data for May, with both reports pointed to worse-then-expected results. Elsewhere, the European Commission president Ursula von der Leyen said they are ready to intensify talks with the UK and inject fresh momentum into negotiations. Talks with UK prime minister Boris Johnson are due later today.
Against this backdrop, the UK’s FTSE 100 sheds 1.05% to 6,040. Italy’s FTSE MIB edges lower by 0.83 percent to 18,732, France’s CAC 40 loses 1.27 percent to 4,777, while German DAX 30 declines by 1.36 percent to 11,786. After decent gains witnessed on Friday, U.S. stock index futures slide as worries about a potential second wave of coronavirus led to deepening concerns over the global economy.
In currencies, the dollar is little changed against major counterparts. Earlier in the day, the greenback was boosted by safe-haven demand but as risk aversion has abated somehow, the movements in currency markets turned muted. EURUSD continues to hold above the 1.12 support zone, with the immediate resistance coming around 1.1270. the pair needs to make a decisive break above this level in order to regain the 1.13 handle in the short term. On the downside, the technical picture remains neutral as long as the prices stay above the mentioned 1.12 area. For now, it looks like the common currency struggles for direction after a two-day bearish correction witnessed late last week.
In the oil market, bullish attempts in Brent are being capped by the 100-DMA around $38.70. earlier in the day, the futures dipped to $37.20 but managed to bounce partially and even turned slightly higher on the day as risk aversion has abated somehow. Anyway, downside risks continue to persist, and chances for a decisive break above the $40 handle are fairly low at this stage, especially considering the resurgent concerns over the coronavirus pandemic. On the downside, the prices need to hold above the $37 handle in order to avoid deeper losses.
Nathan Lambert, Head of Global FX Analytical Department