European stock markets upbeat on Friday, as euro and sterling remain under a heavy pressure. The overall investors’ sentiment is quite bullish on the back of positive geopolitical developments. As two Koreas hold a historic summit, Kim Jong-un has pledged a "new history" in relations with his neighbour. Meanwhile, Trump reiterated that he and China president Xi are “good friends”, which gives a hope that the two countries will eventually avoid a trade war and resolve the issues through peaceful and constructive negotiations. FTSE 100 adds 0.86 per cent to 7,485, France’s CAC 40 rises by 0.28 per cent to 5,468, while German’s DAX 30 is up just 0.82 per cent to 12,603. Meanwhile, Wall Street futures show the stocks will open with gains, as tech shares continue to appreciate after strong earnings.
The dollar mainly neglected the Q1 GDP, despite the numbers came above expectation, at 2.3% versus 2.0% expected. The muted reaction can be explained y the fact that consumer spending grew at its weakest pace in nearly five years. EURUSD has recovered somewhat following the release and approaching the 20-hour MA around the 1.21 level, while previously the single currency refreshed January lows around 1.2055. The bearish risk in the pair persist, and the price still may drop to 1.20, as the greenback will likely continue to appreciate due to growing Fed rate hike expectations, while the euro area economy shows signs of slowing down.
GBPUSD had another blow on Friday. The Q1 UK GDP numbers disappointed, as the economy seems to be on brink of stagnation - quarterly growth fell to just 0.1%, the weakest since 2012. This makes investors further doubt that the Bank of England will hike the rate in May. Expectations for tightening at the next meeting dropped strongly below 30% from over 50% earlier. So the pound’s reaction looks natural, especially amid a wide dollar rally. Traders will likely continue to unwind longs in the coming days, which means the pair has not found a bottom yet. GBPUSD reached fresh early-March lows at 1.3746 and may challenge the 1.37 figure down the road.
Brent oscillates around the 20-hour MA, unable to climb back above the $74 figure. It looks like bulls decided to take a pause after recent rally and wait for fresh clues in the market. At the same time, the price doesn’t show any signs of a deeper bearish correction, which confirms the firm positions of Brent. The bad news for the market is that a number of large Chinese refineries will shut in May and June for maintenance. This means oil demand in the world’s largest crude oil importer will decrease temporary. In the short term, market participants will pay attention to the traditional weekly report by Baker Hughes. But Brent won’t react to the numbers, unless the data are much stronger or weaker than expected.
USDJPY turned negative after the GDP report. The pair quickly dived below the short-term moving averages in the hourly chart and clings to daily lows around the 109.00 level. Should this area restrict the bearish bias, the greenback will have a chance to resume its ascent. However, the bulls seem to be reluctant to push the pair above the early-February highs around 109.50. A decisive break above this level is necessary to avoid the downside correction below 109.00.
Gold prices are finishing this week with heavy losses, which is not surprising, considering the USD index is trading around the January highs. After two bearish days, the yellow metal however is trying to rebound, probing the $1,320 mark again. The price returned above the key 100-DMA but it is yet to close the day higher in order to confirm the breakout. Despite the current correction, longer term prospects for gold still tilted to the downside, as the greenback shows strong signs of breaking the bearish trend. Should the Fed members signal a more “hawkish” tone in the coming weeks, the precious metal will have to register fresh lows and may return below the $1,310 level in the medium term.
Nathan Lambert, Head of Global FX Analytical Departament