European stocks turned green Tuesday, as global sentiment continues to improve amid further easing of geopolitical tensions. Despite Chinese economic data gave a mixed picture, investors tend to buy risky assets after the recent sell-off. Positive expectations over Q1 earnings season add to the bullishness. The UK shares pared losses and turned positive, as the pound retreated following weak wages data. However, global markets remain alert and look cautious as geopolitical issues may reemerge at any moment. Britain’s FTSE 100 gains 0.07 per cent, to 7,203, France’s CAC 40 rises by 0.42 per cent to 5,335 and German’s DAX 30 adds 0.79 per cent to 12,488. Wall Street stocks meanwhile set for significant gains as investors cheer earnings.
The greenback demand has returned during the European trading, and EURUSD crawled back into the negative territory. Apart from dollar recovery, the single currency came under pressure after another disappointing economic report - ZEW Survey in Germany and the euro zone came in below expectations in April. In particular, current conditions in Germany came in at 87.9 vs. forecast at 88.0, economic sentiment was at -8.2 against the expected -0.8 reading, and economic sentiment in the euro area dropped to 1.9 vs. 13.4 in March. Such dismal numbers highlight the ECB won’t have to hurry with monetary tightening, which is negative for the euro. Meanwhile, the broader picture shows the pair still may resume its ascent in the short term, especially after probing the key 1.24 mark earlier, for the first time since end-March.
GBPUSD refreshed its post-referendum highs in the morning, touching the 1.4376 figure. However, the pound failed to preserve its daily gains and turned slightly negative as UK wage growth disappointed the bulls. Average weekly earnings including bonuses came at 2.8% 3m y/y versus 3.0% expected in February. But the weaker-than-expected numbers hasn’t affected market expectations over the May rate hike by the Bank of England, which remain high. In the coming days, the pound’s bullishness will have another test by economic data including inflation and retail sales. Should the results come dismal, the immediate downside pressure on GBPUSD will increase. But this profit taking may turn out a dip buying opportunity as fundamental prospects for the pound still looks good, while dollar’s fate remains in the hands of the unpredictable Trump.
USDJPY fails to stage a recovery despite the buying pressure around safe haven yen continues to ease. Following a brief dip below 107.00, the greenback is trying to regain the psychological level and trading around the opening levels. The pair’s behavior shows that despite the dollar managed to attack buyers, it still lacks drivers to show a meaningful and sustained bullish move, mainly due to market fears over Trump’s external policy. The president’s aggressive steps overshadow the continued Fed tightening. However, as the political pressure will gradually ease (if it does at all), traders will likely shift focus into the monetary policy, which could make the buck more attractive.
Brent crude is trying to decide on further direction. On Tuesday, the asset is trading mostly flat after yesterday’s bearish correction. Prices retreated as geopolitical concerns continue to ease, while the US shale drillers don’t stop scale up their activity. The current stance points to a short-term neutral picture for Brent. However, its inability to regain the upside momentum highlights the risks of a bearish correction increase in the charts. The key to the downside is the $71 mark as a break below will open the way to more aggressive profit taking. Such a scenario may develop should the US inventory and production data signal further increase.
After two days of gains, gold prices came under pressure again. The yellow metal slipped from levels around $1,350 to the $1,340 area. Spot gold is retreating amid lack of save haven demand as well as due to greenback’s recovery attempts. Should the global fears continue to dissipate in the coming days, the bearish pressure on the precious metal will increase. The immediate support is now at $1,340 and $1,385.
Nathan Lambert, Head of Global FX Analytical Departament