European stock markets inched higher early on Monday, but failed to preserve the cautious optimism and turned red during the session. It looks like that worries over China economy have finally outweighed positive earnings expectations. China's economy grew at its slowest pace since 2016 in the second quarter as factory output weakened to a two-year low. The numbers fuelled concerns over the world’s second economy, especially against the backdrop of the trade war with the US. Meanwhile, US-EU trade jitters also show signs of heating as Trump described the European Union as a "foe", while Tusk warned that trade wars can lead to hot conflicts. As such, Britain’s FTSE 100 loses 0.89 per cent to 7,593, France’s CAC 40 sheds 0.25 per cent to 5,415, while German DAX 30 has turned green and gains 0.09 per cent to 12,553. US stock index futures are trading flat despite a strong report from Bank of America.
The greenback shows a rather subdued price action, with US June retail sales failed to boost volatility in a calm Monday trading. Advanced retail sales came in at +0.5% as expected, while sales excluding autos increased by 0.4% vs. +0.3% expected. Meanwhile, the revisions were on a much stronger side, with May figure was revised up to +1.3% from +0.8%, and to +1.4% from +0.9% ex autos. However, the control group sales disappointed, so the general consumer picture was mixed and haven’t changed the sentiment around the buck. EURUSD continues to trade with a marginal bullish bias, clinging to the 1.17 level. The pair has retreated from a daily high of 1.1725 recently but preserves a mild short-term bullish tone. Meanwhile, the bigger picture continues to point at the dollar dominance as the greenback continues to receive support as a safe-haven currency mid the lingering trade tensions. Besides, the US data confirms the economy is ready for further rate hikes, while the ECB continues its cautious strategy.
GBPUSD touched seven-day highs just below the 1.33 mark earlier in the day, but has retreated since, though remains slightly bid in the daily charts. The pair is still influenced by the general dollar sentiment as well as by the incoming Brexit headlines. The downside pressure on the pair has eased after Trump has somehow softened his stance on the US-UK deal. Nevertheless, the price action in the pound will likely be limited in the nearest future as market participants shift to a cautious trading ahead o a slew of important UK economic data including wages and employment figures, CPI report and retail sales due in coming days. The numbers will inevitably affect the August Bank of England rate hike expectations and thus will set further tone for the pound. Weak data could send the pair back below the 1.32 region.
Brent crude is back on the defensive after failed attempts to continue its corrective rebound from lows below $73 reached last week. The price failed to get back above $75 and has attracted another sell-off which is expending below the $73 support. One of the reasons behind the increasing downside pressure was the report that the US administration is mulling a 5-30 mln barrel release from the Strategic Petroleum Reserve. Another bearish driver was the weak China data which fuelled concerns over demand growth. Besides, the cooling worries about global supply shortfall added to the negative sentiment in the market. The technical picture for Brent continues to worsen, but buyers on dips could emerge later this week should the US inventories and production data confirm the activity decline in the shale industry.
Gold price is trying to recover ground as the dollar demand has eased somehow. The yellow metal fell to one-year low of $1,1236 on Friday and therefore confirmed that it’s too early to call a bottom despite the recent bullish attempts. Today, spot gold has been changing hands above $1,240, with a mild upside intraday bias. The metal remains vulnerable to further losses as it remains unattractive for buyers. Moreover, the asset still looks interesting for selling on rallies, which have been limited by the $1,261 area this month. Even a daily close above the $1,245 region won’t necessary guarantee the easing selling pressure.
Nathan Lambert, Head of Global FX Analytical Department