After a relatively lackluster session in Asia, European stock markets opened marginally lower on Wednesday but turned mixed soon, as Germany extended its coronavirus stimulus package until the end of 2021 from the initial end date of March next year. Meanwhile, France confirmed its intention to unveil the economic recovery plan on September 3. In general, the mood across the region is subdued ahead of Powell’s speech on Thursday at the Jackson Hole economic symposium. Investors will look for clues on further stimulus, as well as comments on inflation and its impact on the dollar.
Against this backdrop, the UK’s FTSE 100 sheds 0.29 percent to 6,019. Italy’s FTSE MIB edges lower by 0.05 percent to 20,019, France’s CAC 40 gains 0.19 percent to 5,018, while German DAX 30 rises by 0.51 percent to 13,131. U.S. stock index futures are trading mixed ahead of the opening bell on Wall Street, with the Dow is declining and the Nasdaq is showing gains, preparing to register fresh all-time highs.
In currencies, most pairs are little changed on Wednesday as traders keep a cautious tone ahead of Powell’s speech. EURUSD is trading marginally lower on the day but still holding above the 1.18 handle. according to the recent reports, Germany announced an extension to the coronavirus travel warning for countries outside Europe until September 14. Europe’s largest economy reported 1,576 new infections on Wednesday, bringing up the total count to 236,429.
Also, there are warnings that a second wave of the virus could hit the country as early as this November. As such, the euro came under some negative pressure despite stimulus news from France and Germany mentioned above. Should risk sentiment deteriorate further later in the day, dollar demand may pock up and drive the pair lower. However, it looks like the 1.18 figure will remain in market focus at least until the speech from Powell.
USDJPY is edging slightly lower after a two-day recovery. Still, the dollar is holding above the key 20-DMA that arrives just below the 106.00 handle. On the upside, the pair is being capped by the 106.60 intermediate resistance that could pave the way to 107.00 once broken. However, if the Fed’s Governor expresses a dovish tone on the economy and monetary policy, the greenback will get under a widespread selling pressure that could bring the pair under the mentioned moving average, down to the 105.40 support, followed by the 105.00 handle.
In commodities, oil prices shifted into a corrective mode on Wednesday after the recent rally toward March highs around $46.50. Brent has retreated to the $46 area where the 200-DMA arrives. Later in the day, the EIA data could affect short-term dynamics in the market that is supported by storms in the Gulf of Mexico. In a wider picture, sustainable recovery in oil prices could be expected once the pandemic ebbs.
Nathan Lambert, Head of Global FX Analytical Department