European stocks surged on Friday, as investors show signs of optimism after a turbulent and “bloody” week. The markets were able to switch into a recovery mode after the central banks and governments around the world adopted an aggressive approach to mitigating the economic consequences from the coronavirus pandemic.
However, the bounce will likely be limited and unsustainable, as the full extent of the economic damage remains unknown, and the pandemic is yet to reach a peak. On the data front, Germany’s PPI came in lower than expected but investors shrugged off the release and continued to move higher in a widespread relief rally at the end of the trading week.
Against this backdrop, UK’s FTSE 100 adds 1.85 percent to 5,246, Italy’s FTSE MIB rises by 2.07 percent to 15,787. France’s CAC 40 gains 5.26 percent to 4,058, while German DAX 30 recovers by 3.90 percent to 8,946. U.S. stock index futures point to a higher open after yesterday’s bounce, suggesting the US markets could finish the week with a big swing.
In other markets, the dollar has been in a retreat mode after the recent rally. Still, the downside pressure is limited, as other currencies struggle to extend the momentum as traders remain cautious. As such, EURUSD failed to regain the 1.08 figure, GBPUSD stopped shy of 1.19, and the USDJPY pair registered fresh local highs around 111.35 but has settled above 110.00 after a rejection.
Meanwhile, USDCHF refreshed 2020 highs just below 0.99 and retreated partially amid the improving risk sentiment across the board. Still, the pair quickly bounced from the 0.9740 area and got back above 0.98. The fact that safe-haven currencies remain afloat within the current correction shows that risk aversion may reemerge at any point as the situation surrounding the coronavirus remains critical.
As for commodities, Brent crude climbed back above $30 earlier in the session and has settled marginally above $29 since then. Despite a decent bounce from multi-year lows below $25, the prices struggle to attract a more robust demand as the fundamental picture in the market still leaves much to be desired, and bearish risks continue to persist.
Gold prices staged a rebound and have exceeded the $1,500 mark on Friday. The precious metal registered local highs around $1,516 and retreated partially. The bullish momentum looks unconvincing at this stage, and the daily close above $1,500 is needed for a confirmation of a bounce. On the downside, the key support arrives at $1,450 while an important resistance lies around $1,535.
Nathan Lambert, Head of Global FX Analytical Department