Following one of the worst trading days for Wall Street in weeks, Asian markets suffered a substantial decline on Friday, and the European equities, which opened on a softer note, continue to slide on the back of increasingly hostile trade wars rhetoric. Trump administration’s plan to impose tariffs on $60 billion worth of Chinese goods triggered a tit-for-tat reaction from the Chinese authorities who fired back with tariffs against $3 billion in American goods. Moreover, it is reported that Russia's ministry of trade and industry as preparing to impose restrictions on US imports in response to Trump’s tariffs on steel and aluminum. Against this background, there are increasing concerns that other countries could engage in the trade war, which makes the risky assets keep bleeding. Interestingly, these fears have outweighed the potential relief for European markets from approval tariff reprieves for the European Union by the White House. As such, the Britain’s FTSE 100 remains below the 7,000 mark and sheds 0.47 per cent to 6,920, Germany’s DAX 30 loses 1.33% to 11,939 and French CAC 40 falls 1.14% to 5,108.
The currency markets have mostly shrugged off the tariffs theme, except for USDJPY which plunged to the lowest levels since the US presidential elections in 2016.The pair touched a low of 104.60 in the Asian trading, though has recovered somewhat since and returned to the 105.00 area. By the way, Japan’s finance minister Taro Aso made some comments on the excessive currency moves and indicated he was not happy with yen strengthening on the back of trade war rhetoric. However, his intervention attempts turned out useless, as the power of risk aversion is obviously far more significant for the time being. Despite the bearish pressure has eased a bit, USDJPY may continue to probe fresh long-term lows down the road, while recovery attempts will likely be seen as selling opportunities, at least until the situation with global trade stabilizes.
The EURUSD pair is stuck in a relatively tight range, clinging towards the 1.23 level. The euro attempts to gain bullish traction, but the upside potential remains limited as long as the pair is trading below the intermediate resistance of 1.2380. US durable goods orders expanded at a monthly 3.1%, coming above the initial estimates in February. However, good numbers failed to give the greenback a significant bullish impetus as Trump’s protectionism remains the dominant topic even in the currency markets. Technically, a daily close above the 20-DMA at 1.2320 will give way to further bullish attempts at the start of next week, though some global and fundamental factors could change the situation during the upcoming weekend.
GBPUSD is extending its daily gains above, refreshing session highs in the 1.4150 region. The pound has resumed its bullish move mainly on the back of dollar weakness – DXY dropped to session lows around 89.50 recently. The additional impetus was received from comments by the BOE MPC external member Gertjan Vlieghe who highlighted that the recent data adds to warranting removal of monetary stimulus, which was seen by traders as a hawkish signal. Despite a better GBP's tone, it is unlikely that the pair will manage to climb back above the 1.42 mark any time soon. Moreover, the pound could even retreat, should the dollar demand reemerge.
Crude oil prices continue the unconvincing recovery after yesterday’s correction. Brent can’t make a decisive break above the $69 level, facing sellers on rally attempts. The recent Saudi energy minister statement on the need to continue coordinating OPEC+ members on supply curbs in 2019 has impressed the market, but prices have lost the steam fairly quickly. The US-China theme causes some concerns in the oil markets over a potential global demand decrease on the back of a trade war, which limits Brent’s attractiveness for the bulls. Besides, traders are cautious ahead of Baker Hughes report which may indicate further rise in drilling activity. Meanwhile, a daily close above $69 is going to become a small victory for Brent.
Gold prices shine brightly as trade war fears reemerge. The bullion gained 1.27% on the day and refreshed one-month highs of $1.348,58 during the European trading. Faltering dollar and equities have spurred demand for the precious metal which has long struggled to stage a meaningful recovery. Uncertainty over a potential global trade war will continue to weigh markets in the short-term at least, so gold prices may yet reach fresh highs against this background before a bearish correction takes place.
Nathan Lambert, Head of Global FX Analytical Departament