The negative sentiment in Europe has intensified on Thursday, with the main regional stock indices dropped to three-week lows after a mild bullish tone in Asia. Investors’ sentiment remains subdued on the back of remaining concerns over trade wars as Trump prepares to present new tariffs on Chinese imports. Meanwhile, the report that the US administration will announce later today the EU has been granted a temporary exemption from tariffs did nothing to bring a meaningful relief to stocks. Risky assets remain under pressure, and Wall Street stock index futures point to sharply lower open. As such, the Britain’s FTSE 100 has slipped below the 7,000 mark and sheds 1.35 per cent to 6,943, Germany’s DAX 30 loses 1.41% to 12,135 and French CAC 40 falls 1.5% to 5,161.
The greenback is mostly on the defensive following yesterday’s “dovish hike” by FOMC. The EURUSD pair however turned red as fresh data showed business activity in the euro area is at its slowest pace of expansion in more than a year. The price reached highs just below the 1.24 level but reversed its course following the release and dropped to daily lows around 1.23. The current dynamics in the pair is rather neutral, and the longer-term prospects for the euro remain bullish. Meanwhile, for the time being, there is a risk of further partial profit taking following the recent local rally. A break above 1.24 is needed to brighten the near-term outlook for the single currency.
The BoE decision to leave rates unchanged was widely expected, but there were two dissidents who voted for a hike, which triggered the initial bullish reaction by GBPUSD. The pair jumped above the 1.42 mark but quickly retraced and is back to square one as the dust has settled. Besides, the central bank didn’t confirm the prospects for an earlier and more aggressive tightening down the road, and this cautiousness has disappointed GBP bulls. Should the pressure intensify, the pair may lose the 1.41 level today. On the other hand, the dollar’s upside potential remains tepid, which limits the downside risks for the pair.
USDJPY dropped to March lows at 105.25 amid the prevailing risk aversion and safe-haven yen demand. The lingering concerns in the global markets continue to weigh the greenback and foster the Japanese currency demand, preventing the pair from a sustainable recovery. Should the risk-off mode get even stronger, the dollar risks testing the 105.00 threshold, which will mark a deeper bearish trend in the pair. The immediate support is now at 105.70. In the longer-term, the downside risk will persist as long as the greenback is trading below the 107.00 figure.
After yesterday’s rally, crude oil prices shifted to a corrective mode. Brent reached a fresh early February high just below the $69.50 area and faced a rather tough resistance. As the barrel has lost its steam on the back of a technical correction and partial profit taking, the bulls retreated below the $69 mark, to the $68.30 region. The overall sentiment in the market remains quite positive, but the chances for a break above the $70 threshold are low for now as the concerns over the US shale production, which rose to another all-time high around 10.40 mbpd, are here to stay. Next on tap for Brent will be the traditional Baker Hughes report on oil rig count due on Friday evening.
Spot gold has somewhat stabilized around two-week lows around the $1.330 level but is yet to close above to confirm the local bullish break. Yesterday, the yellow metal touched a high of $1.336,50 amid a widespread dollar weakness following the Powell’s cautious tone. As a result, the short-term technical picture for gold has improved. However, the downside risks remain as the pressure on the greenback is abating and safe haven demand doesn’t support the precious metal as it did before. Below $1.327, spot gold will likely accelerate its bearish correction.
Nathan Lambert, Head of Global FX Analytical Departament