European stocks are trading mostly lower on Friday after a positive start of the session. Brexit developments continue to weigh investor sentiment amid the rising probability of no-confidence vote in Theresa May next Tuesday. As reported, that threshold for the confidence vote will be reached later today. Leadership challenge against the prime-minister is really gaining traction but in fact such a scenario is unlikely because there is no anyone to replace May now, when Britain has a very difficult period in its divorce process with the EU. So, in our opinion, the fears on this front look somehow exacerbated, though anything could happen in such a Brexit mess. Meanwhile, some signs of easing trade war tensions between the US and China ahead of G20 Summit helps the global markets to stay afloat. As such, Italy’s FTSE MIB adds 0.15 per cent to 18,932, Britain’s FTSE 100 loses 0.27 per cent to 7,019, France’s CAC 40 sheds 0.03 per cent to 5,031, while German DAX 30 rises by 0.13 per cent to 11,367. US stock index futures indicate a slightly lower open amid the ongoing Brexit turmoil.
The greenback is mixed today, though the selling pressure prevails. The buck is partially pressured by the reemerging optimism over the upcoming US-China meeting. The pound stays bid despite a lack of good news on Brexit. It is possible that traders so far don’t take seriously the threat of a no-deal or May’s resignation. But the downside risks for the British currency are obviously still there. GBPUSD struggles to hold above the 1.28 figure and could get lower as the negative Brexit headlines continue to drive the markets. As such, there is still a risk of challenging the 1.27 support level with the next target at mid-August low of 1.2760. In the short-term term however the pair could stay afloat.
EURUSD was rejected from a daily high of 1.1367 registered earlier in the day. So the pair has got back to the opening levels above the 1.13 figure. The euro zone CPI data was in line with expectations and thus failed to impress the market, though the euro has weakened a bit following the release. The key factor behind the limited pair’s strength is still the monetary policy divergence with the US. Meanwhile, Brexit developments could drive the single currency down along with the pound, as it happened earlier this week. Technically, the price needs to stay above the 1.13 threshold in order to avoid a more intense pressure. The pair nevertheless remains under pressure as long as trading below the 1.1450 region. The longer the euro stays under this area, the higher is the risk of a bearish correction.
USDJPY continues to grind lower for a fourth day in a row. The pair struggled to break above 113.60 earlier in the day and was rejected lower, though manages to stay above 113.00 so far. The unstable risk sentiment makes the Japanese yen look rather attractive for buying, especially considering Brexit uncertainty. The general dollar weakness also weights. However, the downside potential in the pair is limited as rising hopes on US-China progress could support risk-on trades sown the road. A daily close above 113.00 will allow for further bullish attempts by USDJPY.
Brent crude is inching higher, recovering for a third day in a row. The price tried to challenge the $68 mark earlier but failed to sustain gains though stays positive in the daily charts. The market is supported by speculations on the potential cut in OPEC production after the December Summit. Besides, the expected breakthrough in US-China trade relations adds to the positive impetus in crude oil prices. On the other hand, the upside potential is limited by a record US shale oil production and the lingering fears over the global supply glut next year. In the short term, Brent may try to break above the $68 level once again but in general, the upside impetus looks unsustainable and fragile at this stage as the market needs more support from OPEC+, at least a verbal one.