European stock markets are trading mostly higher on Tuesday, with autos lead the gains after China confirmed its intention to cut car import duty to 15 percent from current levels of 25 percent, effective 1 July. The reports from South Korea that NK-SK summit is to be held as scheduled also helps the risky assets globally. Meanwhile, Japan and Russia have notified the WTO on possible actions in retaliation against Trump's tariffs. As for Italy, the political tensions have ebbed somehow as the country’s president considered the candidate put forward by the two parties to lead their coalition government. Against this backdrop, Italy’s FTSE MIB gains 0.36 per cent to 2,3176, Britain’s FTSE 100 is up 0.14 per cent to 7,869, France’s CAC 40 adds just 0.09 per cent to 5,642, while German DAX rises by 0,54 per cent to 1,3148. Meanwhile, Wall Street is poised to open with a positive bias.
The greenback is the weakest currency of the day among the majors. The US Treasury yields retreated from seven-year tops which has limited the dollar’s bullishness. On the whole, the currency has somehow stabilized after a drop during the morning hours and remains within its upside trend, waiting for a fresh catalyst. The EURUSD pair has recovered a bit but failed to confirm the correction above the 1.18 mark amid dovish ECB rhetoric. In particular, Liikanen confirmed that rates to stay low for an extended period after QE ends and admitted that euro zone underlying inflation needs to time to rise. Against this backdrop, Bundesbank’s comments that German economic growth is picking up again in Q2 didn’t help the euro. Considering the potential resuming the upside bias in the dollar amid tomorrow’s Fed meeting minutes, the short-term prospects for the EURUSD pair remain bearish.
The pound has also retreated from daily highs though remains in the positive territory so far. The price has encountered offers around the 1.35 threshold and trimmed intraday gains. UK May CBI trends total orders came in at -3 vs. +2 expected. Meanwhile, the BoE governor Carney highlighted that the economy didn’t evolve in line with February forecasts, and the central bank’s inflation report hasn’t brought anything new. It only confirmed that the regulator will continue to be data dependent down the road, which was expected by the market. By the way the BoE’s Vlieghe confirmed a more dovish bias within the MPC as he mentioned that rising rates earlier would have weakened the economic recovery. Therefore, GBPUSD had to return below the 200-SMA in the hourly chart and remains marginally above the opening levels. The potential for another stage of recovery is low at the moment, both from the fundamental and technical point of view.
USDJPY is trading lower on the day, with the 111.00 is now the immediate resistance again. The pair has retreated from four-month lows around 111.40 reached yesterday, but remains within the bullish trend and above the key moving averages in the daily chart. The Japanese currency will hardly be able to drag the dollar much lower from the current levels. Considering the lack of safe haven yen demand, there is a high probability that the pair will recover back above the 118.00 level soon.
Brent crude has resumed its ascent following the recent pause ahead of another attack of the $80 level. The market was recently inspired by the upcoming sanctions on Iran, and now the threat of US sanctions on Venezuela serve as the additional bullish factor for prices. As tough restrictions from Washington will likely affect the fundamental picture in the global oil market and will fuel further cut in global supply, these factors will likely support Brent further, with US inventories data may stay unnoticed by traders, should the numbers come in more or less in line with expectations. If the barrel dares to challenge $80 again, the key resistance is expected at $80,50.
During the sell-off in Asia, the yellow metal managed to hold above the yesterday’s 2018 lows and staged a local recovery amid the dollar weakness. Spot gold has challenged the $1,296 level for the first time since May 16 and retraced partially. Despite the recent recovery attempts, the bullish potential remains limited, and the way to $1,1300 and above is expected to be rather hard unless the dollar comes under an intense downside pressure. Daily close below $1,290 will confirm that buyers are not ready to get into the game just yet.
Nathan Lambert, Head of Global FX Analytical Departament