After Asian equities gained across the region, European stocks continued to head higher Wednesday, as global investor refocus on fundamentals and corporate earnings after weeks of geopolitical strain and uncertainty. Signs of improving relations between the US and North Korea are also adding to investors’ optimism, as well as the recent Trump’s meeting with Japanese Prime Minister Shinzo Abe. Indices in Europe rise for a second straight session, with Britain’s FTSE 100 received additional boost from dismal UK inflation numbers which dented the pound’s rally. The index adds 0.90 per cent to 7,290, France’s CAC 40 rises by 0.28 per cent to 5,368, while German’s DAX 30 sheds 0.11 per cent to 12,572. Wall Street stocks set for a strong opening after spectacular results from Morgan Stanley which reported a record jump in quarterly profits.
The euro area final March CPI 1.3% on a yearly basis, coming in below the preliminary estimate at 1.4%. However, the negative reaction to the report was short-lived, and after the initial break to 1.2340, EURUSD regained its bullish momentum, eyeing the key 1.24 threshold once again. The rebound came amid the USD index retreat from recent highs ahead of the publication of the Fed’s Beige Book. As the economic fundamentals are mainly weaker lately, traders fear that the upcoming report reflect the worsening picture and therefore lower chances of a more aggressive Fed tightening down the road. Nevertheless, the pair is unlikely to make a decisive break above the 1.24 level as dollar weakness alone is not enough for this.
GBPUSD showed a more significant reaction to the inflation numbers from the UK as consumer prices unexpectedly fell to the lowest in a year and came at an annualized 2.5% during last month, below previous surveys and expectations. The disappointing numbers made market participant doubt that the Bank of England will hike rate in May. However, the report shouldn’t question this step by the central bank as consumer prices are still well above the central bank’s 2% target. At the same time, the figures highlight the economic data from the UK is rather weak lately, which may somehow limit the sterling’s bullishness, should other incoming reports reflect a similar picture. In this case, the May rate hike will come into question really.
The USDJPY pair remains in a quite limited range, trying to keep above 107.00 amid another bearish correction in the greenback. The pair’s downside move looks limited due to risk-on environment in global market. On the other hand, the bearish risks for the dollar still persist and could play out if, for instance, Fed’s Beige Book paints a negative economic picture. Anyway, the 107.00 area remains key for the pair in the short term, and a daily close above will give a chance for further bullish attempts down the road.
In the crude oil market, Brent jumped back to the three-year highs around $73 as the traders were encouraged by good US API numbers pointing to decrease of oil and gasoline inventories over the last week. The additional impetus for bulls came from three OPEC sources signaling that OPEC and non-OPEC partners are unlikely to change the supply cut deal in June and won't even raise caps if inventory targets are met. Despite there is nothing new in this statements, the market accelerated its ascent as traders are looking for any positive signs as a reason to take prices higher amid renewed buying after the recent correction signals. Further Brent’s dynamics in the short term will depend on the reaction to the official US shale production and inventories numbers. The broader technical picture has improved after a fresh upside break.
Spot gold resumed the upside move following some retreat in the morning. The yellow metal reached fresh one-week highs above $1,354 and remains close to this area. In the short-term, gold may probe fresh tops and even go to $1,357. However, the risk of a bearish retreat remains, especially as the prices reached more attractive levels. The current local rally is particularly due to dollar renewed weakness, while the increasing risk appetite may play against the safe haven precious metal.
Nathan Lambert, Head of Global FX Analytical Departament