After some indecisive tone in Asia and a negative start in Europe, investor sentiment has improved marginally which opened the way for a recovery in the regional stocks during the session. All the major European indexes turned positive except for the UK FTSE which suffers losses amid the strength in the pound. Markets in general are looking a bit more optimistic, in part due to the receding threat of a no-deal Brexit. Meanwhile, there is still some uncertainty regarding the US-China trade talks, while concerns over the global growth may reemerge at any point. So far, Britain’s FTSE 100 loses 0.22 per cent to 6,886, France’s CAC 40 gains 0.36 per cent to 4864, while German DAX 30 rises by 0.22 per cent to 11,113. US stock index futures are trading near the highs for the day after a release of strong earnings from United Technologies and Procter & Gamble.
The British pound is the star of the day, with GBPUSD jumped to mid-November highs around 1.3040 after a successful break above the 1.30 key threshold. The rally was inspired by further easing in no-deal Brexit fears in the market. The Irish border issue is now being debated, with both sides are inclined to make a deal without a hard border. Against this backdrop, the probability of striking a soft Brexit deal is rising, albeit later that the current official departure date in late March. In the short term, positive expectations may continue to underpin the cable. At the same time, we should remember that negative headlines and developments surrounding the divorce process could hurt the UK assets including the sterling. The next major event for the pound is the vote on May’s plan И due on January 29. A daily close above 1.30 is needed for a confirmation of the latest bullish breakthrough in the GBPUSD pair.
EURUSD is trading marginally higher due to a better risk sentiment that caps dollar demand. The pair has settled above the 1.1350 figure but downside risks are still there. Against the backdrop of economic weakness in Eurozone, chances of a rate hike by the ECB are getting lower. After the latest series of dismal data, a rise in the second half of 2019 is getting increasingly unlikely. In this context, the upcoming ECB meeting could serve as a bearish catalyst for the common currency as Draghi could acknowledge that downside risks to the regional economy have increased. A potentially ‘dovish’ ECB tone may send the euro lower from the current levels so the price could derail the 1.13 support, where the 2019 low lies. A break below this level will make the near term technical outlook more negative.
Brent crude found the intermediate support around the $60 figure and proceeded to a recovery along with global stocks and rose nearly 1% after a decline by 2% on Tuesday amid a widespread risk aversion. The market is partially supported by hopes that China will take additional stimulus measures to prevent further economic slowdown. Traders also hope that the new OPEC+ deal will be efficient in dealing the oversupply issue. On the other hand, the bullish potential remains constrained by rising US shale oil output that could undermine the cartel’s efforts. As a reminder, crude production jumped to an unprecedented 11.9 million barrels per day this month, and despite the EIA expects growth to slow in the coming years, the output could reach fresh record levels in the coming weeks on the back of rising prices.
Nathan Lambert, Head of Global FX Analytical Department