Concerns over North Korea resumed as Kim Jong Un canceled talks with South Korea and signaled he may pull out of a highly anticipated June summit with Trump. The injected uncertainty put pressure on the Asian shares and made European markets struggle for direction on Wednesday. The additional bearish signals come from Italy, where the two big populist parties are reportedly planning to ask the ECB to forgive €250 billion of Italian debt. Italy’s FTSE MIB index dipped almost 1.5% and the yield on 10-year Italian government bonds jumped to two-month highs above 2,00% on the leaked news. Meanwhile, FTSE 100 gains 0.11 per cent to 7,731, France’s CAC 40 adds just 0.006 per cent to 5,553, while German’s DAX 30 rises by 0.36 per cent to 13,017. Wall Street futures a touch higher as Treasury yields hold steady.
The buck continues to climb against the euro. EURUSD derailed the important 1.18 level and probed fresh 2018 low at 1.1766. Eurozone consumer prices rose 1.2% last month as expected, but this is obviously not enough to stop the bearish rally in the single currency. The dollar remains on the offensive as the 10-year Treasury yields holds steady above 3,00%, around mid-2011 highs. The rising inflation expectations in the US fuel dollar demand across the board, while the euro feels the additional pressure from the political environment in Italy, dismal economic data and therefore low expectations around the ECB policy tightening. As the pair has deepened its decline and failed to hold above the psychological support of 1.18, it looks like the bear market will continue. Against this backdrop, traders will likely sell the rallies, and fresh lows for EURUSD are inevitable down the road, should the rising US yields continue to push the dollar north.
GBPUSD remains in a downside channel, though refrains from testing early-January lows around 1.3450. The overall bullish pressure on the buck prevents the pound from a corrective recovery, while the lingering Brexit uncertainty adds to the pressure. From the technical point of view, the pair needs first to overcome the 1.35 mark and then return above the 200-DMA at 1.3550 to partially ease the bearish pressure. Now, the pound hopes for a correction in the dollar after another powerful rally. The UK doesn’t release any interesting economic reports in the coming days, while next week, the inflation numbers will be in focus. Should GBPUSD lose the mentioned support, the selling pressure will intensify.
Brent continues to give corrective signals since yesterday’s jump to fresh November 2014 highs at $79,43. On Wednesday, prices failed to hold above the $78 threshold and dipped to the $77,60 area. Despite the current retreat is local by nature, and profit taking looks quite modest at this stage, there is a threat that we’ll see a deeper correction down the road as the market has already digested the upcoming sanctions on Iran, and the US shale revolution may come into focus again. Brent needs to return above $78 to avoid this scenario and resume the ascent. The bulls meanwhile continue to target the $80 level and ready to push prices higher, should any meaningful driver emerge.
Spot gold didn’t manage to stage a steady recovery, and after some bullish attempts in the morning, the yellow metal has attracted another sell-off. As a result, the price dropped to fresh late-December lows around $1.286 and may threaten the important support area $1,274 down the road. Gold needs a substantial dollar retreat to proceed to a recovery, which looks quite natural from the technical point of view as the metal is oversold heavily.
Nathan Lambert, Head of Global FX Analytical Departament