European stocks fell marginally on Tuesday as investors digest corporate results. The IMF has its growth forecasts for the UK and the euro zone, citing risks for the economic prospects from global trade tensions. Investors are also cautious ahead of the remarks of Fed Chairman Jerome Powell. As such, Britain’s FTSE 100 loses 0.11 per cent to 7,592, France’s CAC 40 sheds 0.43 per cent to 5,386, while German DAX 30 declines by 0.23 per cent to 12,532. US stock index futures are trading in a tight range amid a flood of earnings and fresh clues from the Fed on further course of the monetary policy.
The greenback has been recovering ground after a marginal decline earlier in the day. The USD index is trading at the session highs as investors count on some “hawkish” signals from the Fed governor. In general, the dollar’s moves are rather limited ahead of Powell’s testimony, though the central bank head will likely express a cautious tone on the trade jitters theme, which could limit the buck’s upside potential. As for the monetary policy prospects, Powell is expected to confirm that the central bank will continue to follow a gradual tightening path down the road. As this is already priced in, market reaction to similar highlights should be rather timid as well.
EURUSD is changing hands around the opening level after a slide from a daily high of 1.1744. The general tone around the dollar remains the key driver for the pair which could get back below the 1.17 support in the nearest future, should the greenback receive a bullish boost from the Fed. In a wider picture, the single currency is still vulnerable to losses and could return to the area of lows around 1.15 if the EU-US trade conflict escalates. As for the monetary policy, the dollar’s positions still look stronger as the ECB doesn’t want to hurry with the first rate hike, while the Fed is to hike four times this year. In the short term, the pair needs to keep above the 20-DMA at 1.1665 to avoid a more aggressive sell-off.
GBPUSD dropped from daily highs around 1.3270 and got back below the 1.32 threshold. The UK wages data for June came in as expected and failed to boost the sterling significantly. Meanwhile, BOE's Carney said that no-deal Brexit would be a material event for rates consideration, which put the pound under the pressure, coupled with the resurgent dollar demand. Therefore, the 1.31 support region is back in the game unless the pair finds a bid on the way to 1.3150.
USDJPY remains above the 112.00 figure since it has broken above this barrier, which is a positive technical signal. The pair has been trading marginally below the recent highs around 112.80 which prevent the price from testing the 113.00 next psychological resistance level. The dollar remains firmly in the uptrend, and the price could receive a fresh boost, should the Fed head don’t disappoint the bulls in his today’s and tomorrow’s testimony.
Brent crude price dropped to three month lows of $71,30 earlier in the day and since then the asset struggles to recover above the $72 figure. Crude oil fails to attract buying pressure despite a significant decline (-5% on Monday), which may point to risks of further losses in the short term. Profit-taking was fuelled by concerns over increasing output in Libya, Saudi Arabia and Russia, while Trump’s plan to use the country’s Strategic Petroleum Reserve added to the bearish pressure. As such, it looks like it’s too early to call a bottom for Brent as traders could continue to exit longs, built earlier amid supply shortage concerns.
Spot gold continues to make further recovery attempts which attract further selling. The price was once again rejected from the $1,245 area as the dollar demand reemerged. Market participants are obviously not ready yet to buy the yellow metal within long-term strategies, so is remains attractive for selling on rallies which are shallow and timid. The price needs to firmly regain the $1,240 level in order to challenge the mentioned intermediate resistance again.
Nathan Lambert, Head of Global FX Analytical Department