Following a bearish session in Asia, European stock markets reversed earlier losses and turned green on the day after the European Central Bank decided to set up a new backstop facility. The Eurosystem repo facility for central banks (EUREP) will provide precautionary euro repo lines to central banks outside the Eurozone. The new facility, that will run through until June 2021, will allow other central banks to borrow euro against euro-denominated debt issued.
Elsewhere, the WHO European regional director Hans Henri Kluge said that Europe had first increase in weekly cases in a long time, with 11 European countries facing a resurgence of the coronavirus. On the data front, UK June CBI retailing reported sales came in at -37 versus -38 expected and -50 in the previous month. As such, retail sales balance has improved somehow this month but remains rather subdued overall. Against this backdrop, the UK’s FTSE 100 trimmed losses to -0.12%, changing hands around 6,116. Italy’s FTSE MIB edges higher by 0.19 percent to 19,196, France’s CAC 40 adds 0.08 percent to 4,874, while German DAX 30 rises by 0.20 percent to 12,118. U.S. stock index futures fluctuate, struggling for direction after a deep sell-off witnessed overnight.
In currencies, EURUSD remains under the selling pressure despite risk sentiment has improved somehow. German consumer confidence rebounded to -9.6 in July but the release did little to lift the euro as well. Traders keep a cautious tone ahead of fresh economic data from the US due later today. Despite the failed recovery attempts, the pair remains above the 1.12 handle, suggesting the downside potential is limited at this stage.
GBPUSD managed to erase earlier losses and turned positive on Thursday after better-than-expected CBI data and also amid hopes for a Brexit breakthrough after the reports that the EU is ready to compromise with the UK on the sensitive ‘level-playing field’ issue. However, the recovery potential remains limited, with bearish risks persisting as COVID-19 figures are falling not fast enough to justify a quicker reopening of the economy.
Meanwhile, crude oil prices remain on the defensive today though the downside momentum has slowed in comparison to the sell-off witnessed on Wednesday following the EIA report that pointed to a rise in oil output by 500,000 barrels per day. Brent crude briefly dipped below $40 but managed to bounce quickly and could trim losses further is risk sentiment continues to improve in the short term.
Nathan Lambert, Head of Global FX Analytical Department