European stocks are trading higher on Wednesday as investors await Federal Reserve meeting minutes and digest speculations about the possible measures to boost the US economy. Market participants will be seeking hints at further monetary policy easing from the Fed this evening. Meanwhile, Trump reiterated that he was not prepared to make a trade deal with China amid the current standoff, which capped investor optimism somehow. On the other hand, the US leader highlighted that he was “thinking about” cutting payroll taxes. In Europe, the Italian Prime Minister Giuseppe Conte resigned, kick starting consultations between President Sergio Mattarella and party leaders in an attempt to resolve the political crisis in the country.
Against this backdrop, UK’s FTSE 100 adds 1.06 per cent to 7200, Italy’s FTSE MIB gains 1.61 per cent to 20,815 despite political uncertainty, France’s CAC 40 rises by 1.62 per cent to 5,431, while German DAX 30 gains 1.29 per cent to 11,800. US stock index futures are advancing gradually ahead of the key event of the day.
In currencies, EURUSD is flat around 1.11 amid a lack of drivers and as traders are cautious ahead of the FOMC meeting minutes release. The document will set the tone for the pair, with not as dovish as expected tone from the Federal Reserve will push the greenback higher across the board. In this scenario, the common currency could get back below the 1.1060 intermediate support with the next target at 1.1025. Despite the euro snapped a five-day losing streak yesterday, the bullish impetus still looks limited. Further during the week, the volatility is expected to rise as other major events loom, with market focus will soon shift towards Jackson Hole symposium.
GBPUSD is on the defensive today after a brief ascent on Tuesday. The pair however remains above the 1.21 handle though it is now retreating from two-week highs. A short-lived jump yesterday was due to a lower dollar and some positive Brexit comments from German Chancellor Angela Merkel who said that a resolution might be reached regarding the Irish backstop. UK PM Boris Johnson is meeting Merkel in Germany and French President Macron in France this week. Further dynamics in the pair will depend on Brexit-related news and the tone of the FOMC minutes. The intermediate support comes around 1.2040.
In the oil market, Brent crude extends the bullish drive above the $60 handle as traders cheer positive risk sentiment and speculations about stimulus measures by major global central banks. Prospects of policy easing help to ease concerns over the global oil demand, though the lingering imbalance in the market continues to cap the bullish momentum. Meanwhile, the API data was quite positive and gave a lift to Brent. Should the EIA report confirm bullish numbers, the prices will hold above the $60 level and could refresh one-week highs.
Nathan Lambert, Head of Global FX Analytical Department