European stock markets keep nursing losses for the second day in a row on Friday as investors were spooked by rising US-China tensions over Hong Kong. The Chinese government announced it would impose new national security legislation likely to curtail freedoms in Hong Kong. Now, market participants fear that the conflict could potentially threaten the Phase One trade deal signed by the two world’s largest economies earlier this year.
As a reminder, the U.S. Senate passed legislation this week that could restrict Chinese companies from listing on American exchanges unless they abide by U.S. regulatory standards. As for the data, U.K. borrowing rose to a record high of £62.1 billion last month, while retail sales fell by a record 18% amid the coronavirus pandemic.
Against this backdrop, UK’s FTSE 100 sheds 1.29 percent to 5,937, Italy’s FTSE MIB edges lower by 0.44 percent to 17,161, France’s CAC 40 declines by 0.40 percent to 4,427, while German DAX 30 loses 0.73 percent to 10,985. U.S. stock index futures retreat ahead of a three-day weekend and amid rising Sino-American tension.
After the data out of the UK, the selling pressure surrounding the cable intensified. GBPUSD got back below 1.22 and registered four-day lows around 1.2160. Still, the bearish potential in the pair looks limited despite the resurgent dollar demand amid risk-off trends.
EURUSD feels a more intense downside pressure, extending the retreat from the 1.10 barrier. The pair failed to hold above the 1.09 level and dipped to the 50-DMA that could cap the sellers at this stage. Otherwise, more aggressive losses could be ahead for the common currency.
Meanwhile, USDJPY remains in a tight range between the key moving averages, showing a modest bearish bias on Friday after marginal gains seen yesterday. The pair has settled around 107.50, with the 107.00 handle remaining in market focus, as a break below this level could attract more intense profit-taking.
Elsewhere, Brent crude dipped to $33.50 earlier in the day but managed to bounce to $34.50 afterwards. Despite the latest recovery, the futures remain negative on the daily timeframes, struggling to regain the bullish momentum. On the other hand, confirmation of a double bottom may signal a more robust recovery. Still, Brent will be able to resume the ascent should risk sentiment improve any time soon. Gold prices regained the upside bias on Friday after a fairly strong sell-off seen yesterday as investors proceeded to profit-taking following a strong rally. The bullion has settled around $1,730 in recent trading and needs to overcome the $1,740 region in order to stage a more sustainable ascent towards recent multi-year highs.
Nathan Lambert, Head of Global FX Analytical Department