European stock markets are trading in a mixed-to-positive manner on Wednesday, with risk aversion abating gradually after China unveiled measures to contain the spread of a new strain of coronavirus. Still, markets remain cautious, still focused on news from China. Also, investors continue to follow the headlines from the World Economic Forum in Davos. During the event, US Treasury Secretary Mnuchin said that the US couldn't be more pleased with China deal. Meanwhile, in its latest report, Moody’s Investors Service said that US-China trade deal is positive for selected financial services providers in both countries and also eliminates a number of entry barriers for the US financial institutions.
Against this backdrop, UK’s FTSE 100 adds 0.19 per cent to 7,624, Italy’s FTSE MIB loses 0.61 per cent to 23,700, France’s CAC 40 declines by 0.02 per cent to 6,044, while German DAX 30 rises by 0.13 per cent to 13,573. US stock index futures indicate a positive open as investors monitor a range of corporate earnings and developments in China.
In currencies, after an earlier ascent, the dollar came under some pressure against the majors after Trump called the US currency very strong and highlighted that Fed raising rates was a big mistake. As a result, EURUSD quickly recovered from daily lows around 1.1075 but still failed to regain the 1.11 handle as the US President also threatened to put 25% tariffs on European cars if he United States can't make a deal with the European Union. Amid contradictory signals, the euro may struggle to regain further ground in the short term despite dollar demand has waned. Only once the common currency is firmly above at least the 1.11 handle, the near-term technical picture will improve somehow.
In commodities, oil prices remain under the selling pressure after failed attempts to confirm a break above the $65 handle yesterday. Brent crude continued to receive support around $64 and still looks vulnerable due to the lingering instability in investor sentiment amid the news about a Chinese virus and concerns over a potential surplus in global oil markets, while geopolitical worries have eased. Later today, the API will reveal its weekly report, and should inventories increase, the futures may see a more decisive bearish breakthrough, with the official EIA data due on Thursday being in focus.
As for precious metals, gold prices recouped earlier losses and turned flat on the day. The prices have settled around $1,558, close to the $1,560 key level, a break above which is needed for further gains in the near term. As there are again some signs of deterioration in investor sentiment, the precious metal may even turn positive in the daily charts. On the downside, the key immediate support comes around $1,545. Once below, the bullion will target the $1,535 area.
Nathan Lambert, Head of Global FX Analytical Department