European stock markets continue to nurse losses on Thursday amid rising concerns over a potential trade deal between the US and China. Investors seem to start pricing in a possible breakdown in negotiations after reports that the two countries might not finish a phase one deal this year. At the same time, China’s vice premier, Liu He, said he’s “cautiously optimistic” about getting to a preliminary pact with Washington and invited his U.S. counterparts to continue trade talks. Also, after the US Congress passed a bill supporting Hong Kong protesters, Chinese Foreign Ministry highlighted that China condemns and firmly opposes the bill. Fearing further escalation in trade tensions, investors tend to take profit ad refrain from buying stocks in general.
Against this backdrop, UK’s FTSE 100 loses 0.55 per cent to 7222, Italy’s FTSE MIB sheds 0.16 per cent to 23,314, France’s CAC 40 declines by 0.35 per cent to 5,873, and German DAX 30 sheds 0.20 per cent to 13,131. Meanwhile, US stocks index futures point to slightly lower open on Thursday, a day after all three main indices fell as the chances of a deal in the near-term continue to fade.
In currencies, EURUSD pair has been flirting with the 100-DMA after a brief dip yesterday. The euro extends the rebound from lows below the 1.10 handle but still lacks the upside impetus to stage a more robust ascent. This is in part due to a relatively resilient dollar, after a rather neutral tone of the FOMC meeting minutes revealed yesterday. In general, the appeal of the common currency is still limited amid the remaining concerns over the outlook for the regional economy. Technically, the pair needs to hold above the 1.1050 area in order to preserve the upside bias in the short term.
USDJPY manages to recover from early lows around 108.30 and has settled at 108.60 during the European session. As investors show demand for safe-haven assets and tensions on the trade front keep growing, the pair will hardly be able to clear the 109.00 handle any time soon. Moreover, the dollar could easily resume the decline should risk aversion intensify in the near term. In a wider picture, the pair remains stuck between the 100- and 200-DMAs, coming at 107.70 and 109.00, respectively. Despite the dollar is trading closer to the upper limit of this channel, the sentiment remains fragile and risks skewed to the downside as long as USDJPY stays below the above mentioned resistance.
Meanwhile, Brent crude is clinging to the $62 handle, after a rejection from local highs around $62.80 yesterday. The prices were lifted by a positive EIA weekly report but the market failed to preserve the upside bias as risk-off sentiment weighs. In the short term, Brent needs to confirm a break above the $62 level. Otherwise, the futures could get back below the $61 figure should risk aversion intensify. In the weekly charts, the barrel remains on the defensive, with the risk of a break below $60 persists.
Nathan Lambert, Head of Global FX Analytical Department