European stocks struggle for direction on Wednesday after a slightly negative open, with investors focusing on the U.S Federal Reserve meeting results due later today. The Fed is not expected to make any policy changes and Powell is likely to adopt a dovish tone on the course of its monetary policy.
The International Monetary Fund raised its forecast for global economic growth in 2021 on Tuesday but it was not enough to push the overbought stocks higher, with investors keeping a cautious tone, especially as Global COVID-19 cases surpassed 100 million on Wednesday. The fund now expects the global economy to grow 5.5%this year, an 0.3% increase from October’s forecasts.
On the data front, France January consumer confidence declined from 95 to 92 versus 94 expected. In Germany, February GfK consumer confidence arrived at -15.6 versus -7.9 expected. Elsewhere, the European Central Bank Governing Council member Klass Knot said the euro strength would take prominence for the central bank if it threatens its inflation outlook. He also noted that the central bank will act if finance conditions were to worsening due to market stress.
Against this backdrop, the FTSE 100 in London gains 0.06% to 6,658, Italy’s FTSE MIB sheds 0.32 percent to 21,917, France’s CAC 40 is up by 0.32% to 5,541, while the German DAX 30 declines by 0.19% to 13,845. US stock index futures looked mixed ahead of quarterly earnings from U.S. tech giants including Facebook and Apple.
In currencies, the dollar turned marginally higher nearly across the board during the European hours as risk-off sentiment prevails in the global financial markets. As such, EURUSD slipped to the 1,2120 area after another rejection from the 20-DMA that has been capping bullish attempts for the fourth day in a row already. The common currency came under the additional downside pressure amid weak economic data out of the Eurozone and the latest statement from the ECB’s Knot, as he highlighted that the central bank has the tools to act on euro strength. If the pressure persists any time soon, the pair could threaten the 1.2100 figure. However, a dovish tone from the Federal Reserve’s Powell could cap gains in the greenback and thus support the euro.
In commodities, oil prices have settled around the $56 figure on Wednesday, staying within a tight trading range despite the API report pointed to a decline in US crude oil inventories by over 5 million barrels last week. Now, traders shift focus to the EIA data and the Federal Reserve meeting outcome due later today. If the futures fail to overcome the mentioned barrier any time soon, a downside correction from the current channel could be expected.
Nathan Lambert, Head of Global FX Analytical Department