The European stock markets turned lower on Thursday after a positive open, with drop in Italian shares derailed the emerging recovery. The risk-off environment returned amid reports that two euroskeptics from the League party have been appointed to head key finance committees. This step renewed market worries over the new Italian government’s commitment to the EU and therefore the renewed political uncertainty in the region fuelled a sell-off across the domestic markets. As such, Britain’s FTSE 100 loses 0.55 per cent to 7,585, France’s CAC 40 sheds 0.50 per cent to 5,345, while German DAX 30 declines by 0.80 per cent to 12,594. US stock index futures dipped as well, as trade jitters persist and OPEC meeting comes closer.
EURUSD continues to lose ground and dropped to new 2018 lows during the early hours today. The pair has recovered partially since, but the downside bias persists and the risk of breaking below the 1.15 figure remains high. Political developments in Italy added to the bearish pressure on the single currency which continues to suffer from dollar’s rise – the USD index jumped to 11-month highs today, before retreated a bit. The recent rally in the US currency was fuelled by Fed’s Powell comments as he highlighted the relevance of further rate rise down the road. Technically, EURUSD could challenge the 1.15 threshold should the dollar keep its upside potential and Italian worries intensify. In this scenario, the pair will target 1.1465 next.
The Bank of England left rates unchanged as expected, but Haldane joined McCafferty and Sanders to dissident in a 6-3 voting pattern. The central bank officials backing rate rise cited upside risks to wages and unit labor costs. Besides, all members expressed more confidence that Q1 slowdown is temporary. After the decision, market pricing of an August rate hike increased to 60% from 40% prior to the meeting. The hawkish twist was enough to send the pound north above 1.32, to the 100-hour moving average marginally above the psychological level, where the rally has stalled. GBPUSD is unlikely to resume the ascent in the near term as many uncertainties still remain, including the upcoming economic data and Brexit developments in the bigger picture.
USDJPY has trimmed its intraday gains recently as some risk-off environment returned in the global markets amid the Italian factor as well as on the back of nervousness ahead of the OPEC meeting. The pair jumped to 110/75 earlier but once again retreated and failed to challenge the 111.00 barrier. The dollar is in the red on weekly charts but still has a chance to revive the upside move should investor nerves calm down in the nearest future. The key level on the downside is the intermediate support in the 110.20 area, where the 14- and 200-DMAs converge.
Crude oil prices remain under pressure ahead of the OPEC summit. The latest bearish attempts below $73 have attracted some buyers and Brent managed to trim its intraday losses, but the overall picture still point to the downside. The unnamed coursed report that there is a consensus among OPEC members, with Iran is said to be unlikely to reject the idea of 1 million bpd oil output increase. It increases chances of some agreement during the upcoming OPEC+ meeting and may limit the potential volatility in the crude oil market following the results of the summit. However, the general picture shows that Brent remains on the defensive and will hardly like the verdict that the exporters will announce on Saturday.
Gold prices continue to lose ground, with the metal has dipped to fresh 2018 lows around $1,260 today. Despite the overbought conditions, there are still no signs of easing the downside pressure as the greenback continues to firmly trade within its bullish trend. The recent rise in the USD index, which reached fresh 11-month highs, was fuelled by the accelerated sell-off in the euro amid market worries over the political situation in Italy. From the technical point of view, the yellow metal has reached another key hurdle of $1,260, which if broken van lead to a drop to the $1,252 area.
Nathan Lambert, Head of Global FX Analytical Department