European markets are trading mostly lower on Wednesday as investors remain in a cautious stance amid the lingering worries of a slowdown in economic growth and fears of a potential U.S. recession. Brexit uncertainty continues to weigh on sentiment as well. Meanwhile, European Central Bank President Mario Draghi said that a temporary slowdown in growth does not necessarily mean a recession is coming.
Against this backdrop, Britain’s FTSE 100 sheds 0.25 percent to 7,178, France’s CAC 40 is down 0.09 percent to 5,302, while German DAX 30 loses 0.11 percent to 11,406. US stock index futures are falling again as Treasury yields decline amid the persisting recession fears.
The dollar tried to extend gains earlier in the day but turned negative against the majors. After a brief dip below the 1.250 region, the EURUSD pair rose to the 1.1285 area that is standing on the way to the 1.13 barrier. Draghi reiterated that risks for the outlook in the region keep pointing to the downside. Meanwhile, the ECB chief economist, Peter Praet, noted that the central bank is alert to downside risks and prepared for contingencies that can possibly come about, while all instruments remain available following return to rate guidance as main policy tool.
In general, these remarks were in line with the ECB's current stance since their meeting earlier this month and thus haven’t affected the euro direction much. In the short-term, the pair needs to break above the 1.13 level in order to avoid another sell-off should the risk sentiment deteriorate further.
On the data front, the US January trade balance came in at -$51.1 billion versus -$57.0 billion expected, while the prior result was revised to -$59.9 billion from -$59.8 billion. Exports recovered by 0.9% versus -1.9% prior, while imports declined 2.6% versus +2.1% prior. Despite the trade deficit improved due to slower imports, it’s an improvement anyway, and it’s positive for the greenback. The US currency rose across the board after the release, though remained on the defensive in the daily charts. Crude oil prices are consolidating in a limited range on Wednesday as traders await fresh drivers. The lingering investor concerns over global growth continue to limit the upside impetus in the market as traders fear a slowdown in global demand. A relatively strong dollar amid the prevailing risk aversion adds to the obstacles for Brent. Also, market participants are eager to see a conclusion is reached on U.S.-China trade talks. The negotiations due to restart on Thursday and could affect oil prices and risky assets in general later in the week.
Nathan Lambert, Head of Global FX Analytical Department