European equity markets are on the rise on Tuesday, recovering losses from the previous session. The market sentiment is driven mostly by earnings which look pretty encouraging. As such, Peugeout better-than-expected profit which sent the company’s shares to ten-year highs. Meanwhile, UBS reported a 9% increase in net profit during the second quarter. The overall market sentiment was also supported by China’s government unveiled new measures to aid economic growth amid trade uncertainty. As such, Britain’s FTSE 100 adds 0.80 per cent to 7,717, France’s CAC 40 gains 0.86 per cent to 5,424, while German DAX 30 rallies by 1.39 per cent to 12,721. US stock index futures indicate a positive start.
The US dollar has been trading under a mild bearish pressure today, unable to regain the upside impetus after a sell-off late last week. EURUSD has reclaimed the 1.17 handle in the wake of mixed euro zone PMIs. The figures showed a rise in manufacturing sector activity in July, while the service index came in lower than expected. As a result, the composite PMI declined to 54.3 from 54.9, under the expected 54.8. Now the markets shift focus to the EU-US trade talks due on Wednesday, and traders wonder if Trump will appreciate the Europe’s proposal on free trade. Then the ECB meeting due on Thursday will take the central stage, though no market-moving highlights are not expected from Draghi. From the technical point of view, the pair needs a daily close above the 1.17 threshold to make another attack at the 1.1750 intermediate resistance. Otherwise, the price will have to get back below the 1.16 figure within the next few days.
Amid a weaker tone around the greenback, GBPUSD has settles marginally above the 1.31 level but remains vulnerable, and the upside potential looks limited. The Bank of England Deputy Governor highlighted overnight that once the central bank’s starts to unwind QE and the CPI declines, the regulator might need to cut rates. The additional pressure on the pound comes from Brexit developments, where the risk of a “no deal” divorce is getting very real. By the way, UK PM Theresa May said that the government is prepared for such a scenario. Against this background, the pound will hardly be able to stage a more pronounced recovery even as the dollar bulls remain on the sidelines for some time. Besides, there is a tough local resistance at the 20-DMA standing on the way to 1.32.
USDJPY retreated from daily highs at 111.50 reached earlier in the day and tries to hold above the 111.00 figure. The buck was earlier supported by expectations of a strong rise in Q2 and a rally in the US Treasury yields to 3%. But this is so far not enough to attract a more sustainable buying interest. Besides, the yen was inspired by recent reports that the Bank of Japan is preparing changes to its policy frameworks. As such, the pair continues to retreat from highs above 113.00 and could retest the 111.00 level with the next target at 111.75 should the greenback fail to cheer up the bulls.
Crude oil prices tried to tick higher earlier in the day amid the increasing US-Iran tensions potentially threatening to disrupt global supplies. Today, Iran threatened to respond with equal countermeasures if America attempts to block its oil exports. So there are no any signs of relief on this front so far, which helps the prices to stay afloat after the recent sell-off amid the reemerged oversupply worries. Brent faced a local resistance at $73.70 standing on the way to the $75.50 area, which is the key for the bulls. Oil continues to remain oversold, but fails to attract a more sustainable buying interest due to a high degree of uncertainty in the market. Today’s API report could add to a mild upside pressure in the short term if the release points to a decline in the US crude oil inventories over the last week.
Gold remains at oversold levels, with recovery attempts are too shallow. The yellow metal failed to overcome the $1,235 local resistance yesterday and staged a decent daily decline. On Tuesday, the price targets the $1,230 region but lacks the impetus from a weaker dollar. Considering oversold conditions, gold should stage a corrective rebound amid some retreat in the greenback, but the fact that the price trades below the December 2015 trend-line confirms low chances for a rise at this stage. So the bearish risks persist in the short term, with lows just above the $1,210 are still in the game.
Nathan Lambert, Head of Global FX Analytical Department