After a mixed start, European stocks have resumed the decline amid a global sell-off on the back of new Trump trade headlines. The US president threatened to put tariffs on all Chinese imports, worth around $500bn per year. The growing treat of a full-blown trade war has spooked investors around the world and caused a massive sell-off in risky assets which also feel the pressure from Trump’s overnight remarks about the Fed policy and strong dollar. As such, Britain’s FTSE 100 sheds 0.18 per cent to 7,669, France’s CAC 40 loses 0.57 per cent to 5,386, while German DAX 30 declines by 0.69 per cent to 12,598. US stock index futures are also falling amid the escalation of trade tensions.
Meanwhile, currencies are so far unfazed by new US threats, with major pair hold quite well. The dollar demand has diminished following Trump’s verbal intervention as the president has once again criticized the rising currency and highlighted he wasn’t happy about rising interest rates by the Federal Reserve. However, the bearish pressure on the buck remains subdued, and new trade developments could attract buyers amid risk-off sentiment. The EURUSD pair struggles to regain the 20-DMA, preventing the price from challenging the 1.17 handle. The pair set for weekly decline after yesterday’s drop below 1.16 and still vulnerable to further losses ahead of EU officials’ visit to Washington and the ECB policy meeting next week.
GBPUSD rebound looks more sustainable as the pair mostly holds above the 20-DMA, though it is yet to confirm a break above the 1.30 threshold after three days of loses. The pound could retest this level, should dollar bulls regain the impetus amid trade-war worries. Moreover, the lingering Brexit concerns continue to curb sterling attractiveness. Irish finance minister said that Brexit backstop must be retained and that his country won’t agree to undermine the single market. Besides, the bearish pressure on the pound increased after a series of poor economic data from the UK this week, diminishing prospects for a rate hike by the BoE in August. In these circumstances, it will be rather difficult for the pound to regain strength, so the path of less resistance now is south.
USDJPY retreated from highs yesterday and has been trading mostly unchanged on Friday. The buck struggles to regain the 113.00 level despite the risk-off sentiment came back in the global financial markets. On the other hand, the pair remains firmly above the 14- and 20-DMAs and the 112.00 handle, which supports the positive short-term outlook. On the other hand, the worsening risk sentiment could fuel yen demand and derail the constructive technical picture. The immediate support comes at 112.00. A break below will open the way to 111.40.
Brent crude made another failed recovery attempt earlier in the day. The price extended its local correction to the $73.50 area, where it met a selling interest and resumed the downside movement. Saudi Arabia announced that crude oil exports this month will be in line with June figures and that the country will cut its exports by some 100k bpd in August. However, this was not enough to spur a recovery in prices as market participants continue to worry about the Trump’s policy aimed at reducing gasoline prices. Brent has retreated to opening levels around $72.50 and could make fresh bullish attempts if stays above the $72 handle in the near future.
Gold price remain under pressure, though refrain from challenging yesterday’s long-term low of $1,211. The metal struggles to regain buying interest and has been capped by the $1,230 for the third day in a row. The dollar’s local retreat is not enough to spur a corrective rebound in the precious metal, while gold’s allure as a safe haven has dulled lately. So the downside risks for the metal continue to persist. It needs to see a significant and longer term greenback retreat to stage a really convincing rally, otherwise, the next $1,200 threshold will come into play.
Nathan Lambert, Head of Global FX Analytical Department