European stock markets are rallying on Friday, with all major indexes add by over 1.5% each. Investors are still focused on trade-related news as the recent talks about the possible lifting all or some of the tariffs on Chinese imports. So further signs of progress in the US-China trade relations fuels hopes of a major and long-term breakthrough that could finally result in a trade deal. The Stoxx 600 is up nearly 1% and reached the highest level since early December. Amid the global optimism, German DAX 30 adds 1.96% to 11,132, Italy’s FTSE MIB rises by 1.23 per cent to 19, 710, Britain’s FTSE 100 rises by 1.77 per cent to 6,956, while France’s CAC 40 gains 1.55 per cent to 4,868. US stock index futures are also buoyed by trade hopes and Wall Street indexes now set for fourth straight week of gains.
The dollar still mixed against the majors. This time, the pound lags after the recent rally. GBPUSD was rejected from the highs around 1.30, down to lows in the 1.2925 region. The disappointing UK retail sales data prompt some selling in sterling earlier in the day amid the prospects of rising economic uncertainty in the country facing Brexit. The downside potential is limited by expectations for an extension of Article 50. Interestingly, this factor remains at play despite repeated denials by the UK government. As the uncertainty surrounding the divorce process remains high, the cable will likely remain volatile in the short and medium term. The 1/30 handle remains the key upside target for sterling bulls for now.
After yesterday’s drop to the low of 1.1370, EURUSD proceeded to recovery attempts on Friday. In fact, the pair continues to trade in directionless mode despite the tone in the weekly charts is obviously negative. The upside in the euro is limited as the data showed this week that the German economy slowed to a 5-year low in 2018, while the ECB President admitted the economic slowdown in the region, which means the central bank won’t rush to hike rates this year. On the other hand, the dollar bulls are also capped by the ongoing US government shutdown and the prospects of a pause in the Fed rate hikes. From the technical point of view, euro still needs to overcome the key 1.15 resistance area to resume the upside move in the medium term.
Brent crude is rising on Friday after a marginal decline yesterday. The price has been testing the $62 figure since the start of the day but struggles to break this hurdle as the market lacks the incentive. OPEC oil output declined substantially in December, which coupled with the general investor optimism in the global financial markets lifted prices. But at the same time, the current dynamics in Brent shows the upside potential is limited as traders continue to worry about the oversupply in the global oil market and the rising activity in the US shale fields. Later today, Baker Hughes will release its weekly report on the US drilling activity. If the data reflects rising oil rigs, the barrel could correct lower before the end of the reading session in the US.
Nathan Lambert, Head of Global FX Analytical Department