The European stock markets trade lower across the board on Wednesday, with almost all sectors burse losses amid the overall caution over the US-China trade relationships. The risk aversion was fuelled by recent Trump’s comments. The president spooked investors by the phrase that he was not satisfied with recent negotiations between the two countries. However, today the US leader noted that trade deal with China is “moving along nicely”, but the current deal is too hard to accomplish. Besides, the political future in Italy remains uncertain and the stocks dynamics reflects concerns over the situation in the country. Against this backdrop, Italy’s FTSE MIB loses 1.65 per cent to 2,2832, Britain’s FTSE 100 is down 0.69 per cent to 7,823, France’s CAC 40 sheds 1.35 per cent to 5,563, while German DAX declines by 0,68 per cent to 1,2948. Meanwhile, Wall Street is poised to open with substantial losses as well.
The EURUSD pair has accelerated the decline after yesterday’s failed attempts to regain the 1.18 mark. As a result, the price derailed the psychological support at 1.17 and registered fresh 2018 lows at 1.1690. The USD bulls continue to attack the single currency which also suffers from weak euro zone data. By the way, today’s PMI preliminary reports for May highlighted that the regional economy continues to slow since the start of the year. Against this backdrop, the prospects of a more rapid tightening by the ECB look inappropriate. By the way, the ECB member Couere recently hinted that QE probably won’t end abruptly after September. The euro needs a daily close firmly above the 1.17 to avoid further losses at this stage.
GBPUSD dived to fresh 2018 lows around the 1.33 mark. The pound is the weakest currency on Wednesday so far among the majors. Apart from strengthening buck, the additional downside pressure on the pair comes from another portion of dismal economic numbers from the UK. In particular, the April CPI figures came in lower than expected, with the headline consumer price index declined to 2.1% from 2.3% YoY. Following the report, expectations over the next BoE rate hike continued to decline and pressed the pound lower. The pair looks strongly oversold at current levels and may stage a local recovery in the short term, should the upcoming Fed meeting minutes fail to inspire USD bulls.
USDJPY slipped aggressively from highs above 111.00 to nine-day lows in the 109.55 area. The decline is driven by a major yen demand due to risk-off environment across the global markets. Meanwhile, the greenback itself remains strong and continues to trade within the bullish trend. As such, the current retreat could be a nice opportunity for opening new USD longs, based on the prospects of the renewed decline in the Japanese currency as soon as the market sentiment improves. The immediate upside target for the pair comes at 110.20, where the 200-DMA lies.
Brent crude struggles for direction, clinging to the $79 figure after another failed attempt to erode the resistance of $80,50 on Tuesday. The market is in a wait-and-see mode now. Concerns over global supply disruption due to sanctions on Iran and Venezuela continue to support prices close to multiyear lows. On the other hand, there are some doubts that OPEC will proceed with its agreement with the current quotas as further market tightening may open the way to increasing production down the road. In the short term, Brent needs to keep above the local support of $78,80 to avoid a more aggressive profit taking. By the way, the longer it stays below the $80 threshold, the higher the risk of a more pronounced downside move.
Gold climbed to one-week highs below $1,299 earlier in the day, but failed to preserve the bullish impetus as the dollar demand reemerged. Nevertheless, the yellow metal remains in the green territory, gaining some support as a safe haven asset amid a widespread risk aversion. The immediate resistance comes at $1,300. A break above this level will open the way to the 200-DMA at $1,306.60. On the downside, the price needs to keep above the 100-SMA in the hourly chart around $1,290.50 to prevent another sell-off to fresh 2018 lows. Despite the ongoing corrective rebound, downside risks still prevail.
Nathan Lambert, Head of Global FX Analytical Departament