European markets follow the positive sentiment globally on Friday, with investors shrug off the US-China trade conflict. Besides, commodity stocks pushed higher, adding to the bullish environment. Now, markets are gradually shifting focus to the Fed meeting due next week, while commodity traders expect news from the upcoming OPEC+ meeting in Algeria during the weekend. Britain’s FTSE 100 adds 1.00 per cent to 7,441 on the back of sterling decline fuelled by negative Brexit comments by the EU officials who had thrown cold water on Theresa May's trade plan. Meanwhile, France’s CAC 40 gains 0.70 per cent to 5,489, while German DAX 30 rises by 0.56 per cent as well, to 12,395. US stock index futures point to further gains after fresh record highs yesterday.
The greenback is mixed but remains on the defensive generally even as the Treasury yields keep rising. The demand for the US currency is muted amid the risk-on tone and due to timid expectations ahead of the FOMC meeting. The rate hike is priced in, while some investors worry that the central bank will express cautious in the context of the ongoing trade war with China and its consequences for the economy and for the monetary policy path as well. Nevertheless, the recent correction in the GBPUSD pair as well as further decline in the Japanese yen has somehow eased the bearish pressure on the buck.
Cable retreated from two-month highs marginally below 1.33 reached yesterday, down to daily lows around 1.3180. The pair is now attempting to cling to the 1.3150 level in order to escape a deeper retreat in the short term. The reason for profit-taking was the rejection of May’s proposals by the EU negotiators. Now, the threat of a no-deal “divorce” is rising again, which prevents the pound from proceeding with bullish path. Meanwhile, the effect from strong UK CPI and retail sales data has ebbed, and traders are now focused on further Brexit developments. The downside potential is capped by general dollar weakness. Should the pound fail to regain the 1.32 figure in the near term, the risk for a deeper correction will increase.
EURUSD briefly probed the 1.18 figure earlier in the day for the first time since mid-June, but failed to expend gains and turned lower on the day. However, the selling pressure is limited, despite mixed-to-weak PMIs from euro zone and Germany. The price will hardly dare to challenge the 1.18 barrier today, but it may resume the ascent early next week if the offered bias in the greenback persists. A wider technical picture shows that there is a potential for further rise with the next significant target at 1.20. In this case, the bullish trend in the dollar will be challenged.
USDJPY keeps on rising, finishing with gains the second week in a row. The pair reached mid-July highs just below the 113.00 figure today, but has partially corrected lower since then. The key catalyst for the pair is the risk-on sentiment which deprives the yen of safe-haven demand. The price is rising relatively steady since September 7 and has gained decently since. So there is a good selling opportunity in case the risk sentiment changes to worse in the coming days. The initial downside target for the pair now comes at 112.00.
Brent crude is back above the $79 figure after an aggressive retreat yesterday on the back of another portion of Trump’s criticism of OPEC. The US President wrote on Twitter that the cartel “must get prices down now”. As the dust settled, traders have resumed buying and push the barrel back towards the $80 threshold. On the other hand, the bullish impetus is limited ahead of the OPEC meeting in Algeria this weekend. Many traders expect that the countries will agree the official output increase, being under mounting pressure ahead of US sanctions on Iran. On the other hand, Iran strongly opposed this idea, so there is a risk that the meeting will not bring any agreements or deals. Anyway, the trading early next week set to be rather volatile as investors will be digesting the meeting results.