After a fairly positive start to the session, European stock markets retreated on Wednesday, as renewed optimism surrounding stimulus talks in the U.S. failed to boost investor mood. White House Chief of Staff Mark Meadows said that he and House Speaker Nancy Pelosi are due to talk again today and could see some kind of agreement before the weekend, Meadows noted. Meanwhile, the EU’s top negotiator Michel Barnier suggested that a trade deal with the U.K. is within reach. On the negative side, concerns over the COVID-19 pandemic’s spread on both sides of the Atlantic continue to prevent more sustained gains in the markets.
Against this backdrop, the UK FTSE 100 index sheds 1.23% to 5,816, Italy’s FTSE MIB loses 0.89 percent to 19,307, France’s CAC 40 edges lower by 0.73 percent to 4,893, while the German DAX 30 sheds 0.52% to 12,670. U.S. stock index futures turned lower ahead of the opening bell after a positive close on Tuesday.
In currencies, the dollar keeps losing ground across the board amid a rise in the US Treasury yields as bond market investors continue to price in the eventual agreement on the second stimulus package in the US. As such, USDJPY plunged from the 20-DMA to one-month lows below the 105.00 handle during the European hours amid a combination of the broad dollar’s weakness and plummeting equities, with Brexit jitters weighing on market sentiment as well. As the prices dipped below 105.00, the pair is at risk of falling further in the short term. Once below the current lows around 104.80, the next relevant support level is expected at 104.65, followed by the 104.40 area. On the upside, the immediate resistance now arrives at 105.00.
Meanwhile, oil prices failed to extend gains and got back under the $43 level on Wednesday amid the renewed risk aversion. Yesterday, Brent briefly jumped to one-month highs around $43.65 but lost momentum quickly and could correct lower in the short-term if investor sentiment continues to deteriorate. Later in the day, the EIA weekly report could support the futures if the results come in better than the estimate from API that pointed to a rise in US crude oil stockpiles by 500,000 barrels last week versus the expected decline by 2 million barrels. On the positive side, a broad-based weakness in USD demand helps to cap the downside pressure in the oil market. In a wider picture, Brent could decline dramatically if the US officials fail to agree on the stimulus package amid the ongoing coronavirus pandemic.
Nathan Lambert, Head of Global FX Analytical Department