As the Fed hiked rate and sounded not as ‘dovish’ as expected, global stock sell-off has intensified on Thursday, with European shares hit two-year lows and all sectors are trading in the negative territory. Another source of concern for investors is the report that Trump has signed a bipartisan bill on Tibet into law despite China protest. These developments make markets worry about the potential re-escalation of a conflict between the two countries. As such, German DAX 30 loses 0.85% to 10,674, Italy’s FTSE MIB sheds 1.18 per cent to 18,719, Britain’s FTSE 100 declines by 0.27 per cent to 6,747, while France’s CAC 40 loses 1.33 per cent to 4,713. US stock index futures continue to lose ground as investors continue to digest the Fed’s monetary tightening.
Despite the Federal Reserve delivered a rate hike and revised its 2019 plan by just one hike (from 3 to 2), the greenback failed to find a relief from the meeting as the central bank has also pointed to risks for the economy. As such, the US currency remains under a strong selling pressure ahead of tomorrow’s GDP and personal income data. USD may receive some support from the upcoming releases but the potential recovery will hardly be sustainable as traders will further digest the ‘dovish’ point in the Powell’s speech.
EURUSD jumped to 1.5-month high of 114.85, where the 200-day moving average capped the rally. At this point, the pair will need some additional impetus to challenge the important 115.00 resistance that limits the upside potential since late October. The euro gains additional support from the Italian factor. In particular, after months of torturous negotiations, Italy and the EU have finally reached a budget deal. So now the country will avoid penalties from the European Commission, which is an obviously bullish factor for the single currency. Therefore, further downside pressure on the dollar could open the way above the 1.15 barrier in the near term.
Today, the Bank of England leaved its rate unchanged at 0.75% (votes 0-0-9). As was expected, it was a non-event meeting. The central bank expressed a slightly ‘dovish’ tone in its statement, pointing to weaker growth and inflation ahead. The regulator also highlighted that the downside risks to global growth have increased and the world economy is slowing more than they anticipate it to be. At the same time, the bank said that near-term risks to wages growth are slightly to the upside. So this statement has partially smoothed the previous negative signals. The pound retreated from daily highs after the meeting results. GBPUSD tried to challenge the 1.27 figure before the meeting, where the pair faced a resistance and slipped marginally. However, the overall tone remains bullish, mainly due to a widespread dollar weakness.
Meanwhile, crude oil prices have resumed the decline after yesterday’s timid and short-lived rebound that was corrective by nature. Brent has derailed the $55 level and refreshed September 2017 lows around $54.75. Apart from bearish fundamentals, oil prices are falling along with global stocks and risky assets in general as risk aversion continues to set direction for the markets. As the prices have derailed the key support at $55, technically the way to $50 is opened now. So it may take more time for the market to find a bottom. The immediate downside target now comes at $53.
Nathan Lambert, Head of Global FX Analytical Department