European stocks are trading mostly in the positive territory on Wednesday, with bank shares lead the gains. However, investors remain cautious as markets continue to closely monitor the US-China trade talks. Market participants continue to hope that the negotiations could open the way to resolving the trade conflict, but the overall expectations are rather modest. The resumed Brexit negotiations are also in market focus, and concerns about a potential no-deal Brexit remain high. As such, Britain’s FTSE 100 gains 0.24 per cent to 7,584, France’s CAC 40 adds 0.30 per cent to 5,424, while German DAX 30 rises by 0.14 per cent to 12,402. US stock index futures set to decline amid the political worries around Trump as his former personal lawyer pleaded guilty to eight counts including tax fraud.
The greenback attempted to proceed to a corrective rebound earlier today, but sellers reemerged on a modest rally, which is a sign that traders are not ready to resume buying yet and feel nervous ahead of the FOMC meeting minutes which is in market focus now. The news that two of Trump’s advisers face jail doesn’t add to optimism for the buck as well. Nevertheless, the USD may get a chance for a recovery should the central bank confirm its commitment to further gradual tightening despite the ongoing trade wars with other countries. On the other side, there is a risk that dollar losses will accelerate if the regulator shows a more cautious tone after the recent criticism from the President.
Amid the dollar weakness, EURUSD continues to regain ground, with the price has settled above the 1.16 level for the first time since August 9. Despite the euro bullishness, the potential for further sustainable rally looks limited as the risk-off sentiment could easily reemerge in case the US-China talks fail to provide a relief in the relations between the two world’s largest economies. The upcoming FOMC meeting minutes is also a risk event for the euro as optimistic rhetoric by the Fed could serve as a bullish catalyst for the greenback. Moreover, the Powell’s testament at Jackson Hole may reverse the current sentiment around the dollar, which will hurt the pair.
GBBPUSD is mostly flat on Wednesday as the price has faced a stiff resistance in the form of the 20-DMA marginally above the 1.29 figure. Apart from the technical factors, the pound’s upside potential is restricted by the resumed Brexit talks amid the lingering uncertainty around the deal with the EU. In the short term, traders will continue to closely monitor the developments on this front and will likely refrain from more aggressive buying in sterling unless the negotiations open the way to a decline of a probability of a no-deal divorce. The next important resistance comes at 1.2960. A daily close below the 1.29 mark will derail the brightening short-term technical picture.
USDJPY fails to stage a meaningful rebound despite the safe haven demand is rather weak at this stage. The pair’s recovery attempts have stalled in the 110.50 area, preventing the price from regaining the 111.00 barrier. Such a behavior confirms the general weakness in the American currency, which could resume the ascent in case the Fed minutes come in hawkish. From the technical point of view, the dollar needs to regain the mentioned psychological level in order to get on a firmer upside trajectory. The longer the pair stays below this handle, the bigger is the risk of a deeper correction, towards the 200-DMA and lower.
Gold price continues to recover for a fourth day in a row already. The price has been probing the $1,200 resistance today, with the yellow metal has recouped more than half of last week’s losses so far. Gold has further recovery potential as it remains heavily oversold in the charts. But much will depend on the dollar behavior down the road – should the USD bulls get back into the game in the nearest future, the $1,200 level will continue to serve as resistance.
Nathan Lambert, Head of Global FX Analytical Department