It seems the global markets took another escalation of the US-China trade conflict in stride. At least, after a knee-jerk reaction in Asia, shares have recovered and show a healthy and steady dynamics in Europe. The regional indexes are on the rise except for the Italy’s FTSE MIB which lags. China said it has no choice but to retaliate against latest US tariffs, but offered no details on its measures so far. And this keeps the risk sentiment in check. As such, Britain’s FTSE 100 adds 0.17 per cent to 7,303, France’s CAC 40 gains 0.20 per cent to 5,359, while German DAX 30 rises by 0.20 per cent as well, to 12,121. US stock index edge up, with S&P 500 set for a jump at the open as new tariffs on China are lower than feared, though the trade-related uncertainty still caps the upside potential in stocks.
The greenback is mostly on the defensive on Tuesday as global shares manage to rise despite another portion of US tariffs. First, this step was priced in already; second, the measures are less aggressive. On the other hand, the Treasury yields inches higher which is limiting the downside pressure on the buck. The main laggard today is the Japanese yen amid rising equities around the globe and higher Treasury yields. USDJPY spiked to two-month high of 112.27 earlier in the day and now tries to stay above the 112.00 threshold as the overall dollar sentiment remains subdued.
EURUSD is slinging to the 1.17 barrier after a failed attempt to challenge the 117.20 intermediate resistance. Despite the dollar weakness, the euro struggles to firmly rise more rapidly as the risk sentiment is under control and the Treasury yields are marginally higher. Apart from this, traders are gradually starting to prepare for the upcoming Fed meeting due next week, which somehow caps the selling pressure on the dollar as the central bank is widely expected to hike rates for the third time this year. Technically, the pair needs to stage a more robust ascent above 1.17 to proceed with the bullish trade in the short term. The risk for this scenario is the potential rebound in the dollar as risk sentiment may worsen down the road.
The pound is under some pressure after an impressive rally yesterday. The price refreshed late-July high of 1.3170 earlier in the day, but quickly retreated and got below the opening levels as sterling was weighed down by the fact that there won't be any significant progress from Brexit talks in Salzburg this week. GBPUSD has settled around 1.3140 and could show a deeper correction lower should Brexit talks fail to bring any good news in the nearest future. The Irish boarder remains the key issue for the two sides. A break below 1.31 will open the way to 1.3170, where a rather strong intermediate support comes. However, much will also depend on the general sentiment around the greenback as the persistent pressure will cap the downside potential in the pound.
Brent was dragging lower before a spike on the reports that Saudi Arabia is said to be comfortable with Brent above the $80 handle. The price jumped to $78.80 and then settled around $78.50 after a dip to $77 during the morning trading. As the headline from Saudi Arabia is not new for the markets as the OPEC de-facto leader has made similar comments before, the rally looks too emotional and may be unsustainable, despite the “news” was enough to send Brent north for now. In a wider picture however there are still downside risks for the market as OPEC is reported to discuss increasing crude oil output by more than one million barrels during the upcoming meeting. In the short term, traders will focus on the weekly API inventory report and could sustain gains should the release show a substantial decline in stockpiles.
Nathan Lambert, Head of Global FX Analytical Department