The report on US-China trade talks have cooled trade war fears and gave the green light to the European stock markets after a mixed Asian session. The American stock index futures are also recovering, which may well translate into a decent rise in equities after the official Wall Street open. Trump announced new tariffs for Chinese imports last week, which triggered another wave of widespread risk aversion. Meanwhile, following the “feedback” from the Chinese authorities, seem to start adequate negotiations to improve US access to Chinese markets, which is seen by investors as positive development decreasing the risk of a trade war. Should other bullish signs emerge from this front anytime soon, the risky assets demand will return to the global markets. Still, caution will likely persist anyway. As such, the Britain’s FTSE 100 recovers 0.44 per cent to 6,952, Germany’s DAX 30 adds 0.62% to 11,960 and French CAC 40 rises 0.47% to 5,118.
The EURUSD pair continues its ascent since Friday mainly on the back of the persistent dollar weakness. As the price closed last week above the 20-DMA, the bulls keep control of the situation. The pair touched almost three-week highs above 1.24 and is attempting to break this psychological level. However, the upside looks limited either as the greenback also receives some support amid hopes for a healthy dialog between Beijing and Washington. Later today, a number of FOMC members will give their comments, though the market reaction may be limited as investors are still focused on geopolitics and don’t have high expectations of four rate hikes this year after a dovish hike last week. EURUSD may fail to keep above 1.24 today, as the dollar demand may come back during the New York trading. But the overall trend in the pair remains bullish.
GBPUSD jumped to almost two-month highs around 1.4234 and looks set for further gains amid the faded risk-off mood and dollar’s mostly negative bias. Besides, the pound is enjoying the progress in Brexit talks after London and Brussels have agreed on the conditions for the so-called transition period. Moreover, the market continues to price in a rate hike by the BoE in May, and the expectations are already around 80 per cent now. In this background, the pair has a chance for another upside break towards the 1.4280 resistance that will open the way to the next psychological barrier at 1.43, should the dollar fail to gain any support in the short term. Meanwhile, the risk fort the pound is the issue of the Irish boarder which is still unresolved.
The USDJPY pair is licking its wounds just above the 105.00 level. The dollar fell in Asia but remained above the previous low of 104.60 and attracted buyers on the back of weakening yen safe haven demand. The local bearish pressure on the pair has eased somehow for the time being as the real hopes emerge that the trade wars can be avoided. However, one cannot rule out that the threat will come back again and attract yen buying as the geopolitical situations remain unstable and needs caution. So, in the medium term the greenback may slip to even lower lows on the back of negative developments.
Crude oil prices stuck below the $70 mark following a failed attempt to make a decisive bullish break during the Asian trading. Brent has briefly touched a high of $70.30 but the momentum faded quickly, and prices retreated below the important psychological mark. The geopolitical story involving Saudi Arabia and the ballistic missiles by the Yemen-based rebels had only a short-term effect on the market as the incident hasn’t affected supplies at all. Meanwhile, the drilling activity in the US continues to grow- last week, the rig count increased by 4 to 804, which is the eight’s week of growth over the last nine weeks. As such, the only bullish factor for the market now is expectations of extending OPEC cuts into 2019 as well as the greenback weakness. The longer the prices remain below the $70 threshold, the higher the correction risk is.
Gold prices make fresh bullish attempts as the USD bulls are in retreat. Following a powerful rally on Friday, the precious metal has refreshed more than one-month highs around $1350 and remains in the upper part of the daily trading range, despite the decreasing safe haven demand. The immediate support is now at $1343. Should the price break below, the next important hurdle for the bears is going to be the $1340 level. There are no much chances to see a daily close above the $1350 resistance.
Nathan Lambert, Head of Global FX Analytical Departament