The bearish pressure in the global financial markets has somehow abated on Friday, which opened the way for a mild strengthening in European stocks. However, the trade war fears are still weighting the investor’s mood and prevent stocks from a more sustainable recovery. The reports that National Security Adviser McMaster is expected to depart his position soon don’t add to optimism either, pointing at Trump’s steep approach to a major cabinet reshuffle that remains in market focus. As a result, Britain’s FTSE 100 is up 0.15% at 7.150,79, Germany’s DAX is trading 0.27% higher, at 12.376,73 and French CAC 40 is adding 0.12% to 5.273,79. Next week, the market attention will shift to the G20 meeting in Buenos Aires, where finance ministers and central bankers will discuss global economics, the issue of rising protectionism, and cryptocurrency market regulation.
EURUSD meanwhile is back under a mild downside pressure after earlier recovery attempts. The single currency has encountered a local resistance at 1.2335 and is probing the 1.23 marl again. The bearish pressure came from the disappointing euro-area CPI report. Inflation unexpectedly slowed more than initially estimated in February, from 1.2 to 1.1 percent, highlighting the lack of price pressure in the region and, therefore, a need for the ECB to remain patient in terms of rate hikes. Against this background, the pair is exposed to a downside risk as the Fed is widely expected to hike during the meeting next week. In the short term, the euro will likely continue to flirt with the 1.23 mark.
The GBPUSD pair has lost its earlier intraday gains as well and is back to square one as the dollar demand returned, partially on the back of strong industrial production data. The industrial output unexpectedly jumped by 1.1% in February after a 0.3% decline in the previous month. However, the overall tone around the greenback remains bearish, and the pound will hardly dive under the 20-DMA around 1.39 anytime soon. The Russian-British tensions are ignored by traders, focused on USD dynamics and further Brexit developments where no news is good news for now. On the other hand, there so far no drivers that could send GBPUSD above the 1.40 threshold, though next week may well give the pound a chance to break out the range amid the G20 Summit and central banks’ meetings.
USDJPY is attempting to recoup its losses and climb back above the 106.00 level. The pair touched a low of 105.60 recently, which is within striking distance of the long-term lows around 105.25. As the investors’ fears have abated a bit, the risk of losing the 105.00 mark is rather low at the moment, though further negative developments in the world next week could intensify save haven demand, which is bullish for the Japanese currency. The recovery attempts remain shallow and indecisive a long as the greenback remains below the 14- and 20-DMAs at 106.35 и 106.55 respectively.
Crude oil prices remain in a consolidation mode, still struggling to regain the $65 mark. The market feels lack of meaningful drivers to decide on the short-term direction. The US inventories data is rather contradictory, as well as the signals from the EIA. The agency expects global demand to pick up this year, but at the same time warns of further increase in US shale oil production. In order to shrug off the immediate downside pressure, Brent needs to make a decisive break above the $65.40 area. Tonight, Baker Hughes will report fresh oil rig counts data which may send prices to fresh daily lows, should the drilling activity in the US increase.
Spot gold suffers another failed bullish attempt. Following the earlier recovery to $1.321.70, the yellow metal has encountered offers and retraced quickly as dollar demand returned on the back of impressive US industrial production data. Gold may face further downside pressure in the coming trading days, as the greenback hopes to receive a boost from the Fed meeting on Wednesday. The central bank is expected to hike rates and signal the potential pace of further tightening. A hawkish tone from Powell may well bring USD to life, at least in the short term, which is a risk for the precious metal.
Nathan Lambert, Head of Global FX Analytical Departament