Global investor sentiment has improved marginally on Wednesday, after the pre-Christmas rout that hit the markets all over the world earlier in the week. Markets in Britain, Germany and France will reopen on Thursday, so the trading conditions remain rather thin today. In Asia, most indexes extended losses, albeit at a slower pace. Meanwhile, US stock futures turned higher ahead of the official start following Christmas Eve meltdown that was the worst in the history of the stock market, in addition to last week that was the worst since the 2008 financial crisis.
Many investors are still out for the holidays and will return to markets only in January so the trading volumes are relatively low these days. Recent concerns over the Mnuchin’s position have eased after Trump backed him as a ‘very talented’ Treasury secretary. However, the shutdown and the general investors remain alert political uncertainty in the country coupled with growth concerns prevent markets from shifting to the upside.
In the forex markets, the dollar is mixed today. The US currency is trying to recover after a sell-off in tandem with stocks at the start of the week. EURUSD failed to challenge the 1.15 level earlier and now tends to correct lower, testing the 1.14 handle. In a wider picture, the euro is finishing the year on the back foot despite the recent dollar weakness across the board as the pair is still trading not far from mid-2017 lows just above 1.12, while the 2018 high was registered above 1.25 in February.
In 2019, EURUSD could struggle to rebound as the political uncertainty in Europe will be in market focus due to the European Parliament elections in May. The dollar meanwhile could receive support from the potential further Fed rate hike, while a major risk for the USD upside trend is the possible Trump impeachment.
USDJPY nursed huge losses recently as the buck’s safe-haven appeal declines amid the political and economic issues in the US. Against this problems and uncertainty, the Japanese yen counties to look attractive along with gold. The pair dropped to August lows on Tuesday and remains below the 111.00 threshold which is now the immediate resistance area. The corrective rebound looks too timid and limited to call a bottom just yet, so another stock sell-off could drive the dollar even lower. Therefore, the 110.00 figure is still at risk.
Crude oil prices have stabilized on Wednesday after an earlier dip to $50.24. Brent has settled above $51 but the impetus is too weak to bet on further recovery as there are no still fundamental bullish drivers in the oil market that could fuel a strong and sustainable recovery. Traders are still concerned over weaker global demand, rising supplies, and doubt that the OPEC+ deal will efficiently bring the global market into balance.
Gold expends its rally despite the risk-off trends have eased. The yellow metal refreshed mid-2018 highs close to $1275 and continues to target the $1300 level. The bullion’s appeal is rising along with political risks in the US, while investor concerns over global growth adds to the upside pressure on gold. It looks like the metal will keep gaining ground in early 2019 as the global markets remain depressed and avoid risky trades against the current background.
Nathan Lambert, Head of Global FX Analytical Department