European markets are slightly higher on Wednesday, with investors turned extremely cautious ahead of the FOMC monetary policy decision. The US central bank is widely expected to cut rate by another 0.25%, while uncertainty over the potential tone from the regulator remains. In other news, European Commission President Jean-Claude Juncker said that the UK was on track for a damaging no-deal Brexit. He also noted that Westminster’s ideas to replace the contentious backstop policy were falling short just six weeks before the official departure date. By the way, according to the latest headlines, the European Parliament has voted in favour of granting the United Kingdom an extension to Article 50 if the country was to request for one.
On the data front, prices of goods and services paid by UK consumers rose at an annual rate of 1.7% in August, after a 2.1% increase in the previous month. It is the slowest rate of expansion since late-2016. Meanwhile, the Eurozone CPI came in at +1.0% on a yearly basis, missing the flash estimate of +1.0%. On a monthly basis, the figure rose 0.1% versus +0.2% expectations and +0.6% previous.
Against this backdrop, UK’s FTSE 100 adds 0.08 per cent to 7326, Italy’s FTSE MIB rises by 0.69 per cent to 21,952, France’s CAC 40 adds 0.18 per cent to 5,625, while German DAX 30 gains 0.10 per cent to 12,385. US stock index futures are edging lower ahead of an eagerly anticipated Federal Reserve decision which could shed the light on the outlook for monetary policy.
In currencies, the greenback holds steady ahead of the key event of the week, with EURUSD has been under some downside pressure after yesterday’s rally. Bleak Eurozone CPI data failed to inspire the move in the pair. Moreover, the common currency didn’t like the comments by ECB governing council member Pablo Hernandez de Cos who said that available data indicates euro area economic weakness persists in Q3 and pointed to risks of an imminent recession in some euro area countries. He also highlighted that monetary policy cannot be the only instrument to revive the economy and called for actions from countries with scope for fiscal stimulus. EURUSD failed to challenge the 1.1075 intermediate resistance once again and retreated to the 1.1050 area as USD bulls hope the Federal Reserve will deliver a more neutral tone after some positive data from the US.
Meanwhile, crude oil prices have settled around the $64 level on Wednesday after yesterday’s 6.5% plunge in the wake of the statement by Saudi Arabia that oil production would be fully restored by month-end. Such an optimistic view disappointed oil bulls who hoped for a longer-term disruption in production. In the short term, Brent, which is stuck between the 100- and 200-DMAs, needs to firmly regain the $65 figure in order to make another bullish attempt. Future dynamics will depend on the news from Saudi Arabia though.
Nathan Lambert, Head of Global FX Analytical Department