European stocks struggle for direction Thursday, with the main indices opened mostly higher but failed to regain the upside impetus amid the lingering concerns over global trade. Similar to the Asian trade, the autos shares are outsiders in Europe as Trump launched a probe into auto imports which may result in new import tariffs. Meanwhile, the bullish dynamics in the tech stocks and financials partly offsets the cautious tone. Italy's president invited Giuseppe Conte to become a prime minister, which fueled FTSE MIB’s rise initially, but the index turned red afterwards. Meanwhile, Britain’s FTSE 100 is down 0.33 per cent to 7,762, France’s CAC 40 adds 0.06 per cent to 5,569, while German DAX 30 declines by 0,35 per cent to 12,931. Wall Street set to open lower amid the tariff story.
The greenback pulled back from fresh 2018 highs amid the renewed trade war concerns after Trump administration hinted at new import tariffs on cars. The 10-year US Treasury yields retreated below the 3.00% threshold which adds to the local pressure on the buck. Nevertheless, the overall bullish trend in the US currency remains intact, and current moves are purely corrective for now. EURUSD is attempting to recover above the 1.17 mark after yesterday’s drop to another 2018 low of 1.1675. The recovery is so far limited by the 1.1750 area, where the 100-SMA lies in the hourly charts. The ECB has published its April meeting minutes. The regulator expressed confidence that inflation would rise towards target in medium-term. However, this rather hawkish statement failed to fuel the euro’s rise significantly, as the currency still doesn’t look attractive for buyers amid the overall USD bullishness and the political concerns in Italy. In the short term, the pair needs to regain the mentioned local resistance in order to ease the immediate downside pressure.
The pound gained some support from the better-than-expected UK retail sales data. GBPUSD quickly jumped above 1.34 and reached the 1.3420 area, but failed to stage a sustainable ascent. The pair clings to the 1.34 mark and trades in the positive territory, however the impetus remains dismal as the overall economic picture in the UK leaves much to be desired, and Brexit uncertainty is still there. From the technical point of view, the pound needs to show a daily close at least above the 1.34 threshold to avoid another sell-off in the upcoming future. The overall risks in the pair still point to the downside, despite the current corrective rebound.
USDJPY slipped to 10-year lows around 109.30 and since has recovered partially but remains deeply in the red, nursing substantial losses since Tuesday. The key catalyst behind the bearish correction is the renewed risk aversion in global markets. The pair will likely remain under a local downside pressure as long as uncertainty over trade persists. However, any positive signal from this front. Or a sign of relief should be taken as a buying opportunity for the greenback as other factors point to the upside against the yen. The immediate upside target for the pair is the 110.00 area, where the 14-DMA lies.
Brent crude started the day close to $80 but failed to challenge the barrier and turned lower during the day. The price dipped below $79 and may deepen the correction amid a lack of fresh bullish drivers. The market has largely priced in the risks from sanctions against the two large OPEC producers – Iran and Venezuela. The US inventory report came in bearish as crude oil stockpiles increased more than expected, and production continued to rise to fresh record volumes. Against this backdrop, Brent could show a more aggressive decline, should no fresh positive signals emerge in the market in the nearest future. A daily close below $79 will set the tone for further correction towards $78 and lower. The potential profit taking ahead of the weekend may add to the bearish pressure.
Gold prices continue recovery attempts amid the widespread dollar retreat. The yellow metal is close to challenging the key $1,300 mark. A break above this level will open the way to further gains, though traders should be cautious as the greenback may resume the ascent as soon as the risk-on trading returns in the global markets. In the short term, the price may dare to test the mentioned round level but could attract selling on a rally within the bearish trend.
Nathan Lambert, Head of Global FX Analytical Departament