After a negative start of the session, the sentiment in the European stock markets has improved somewhat but worries on Italy's budget meeting keep buying interest subdued. Investors are also digesting a portion of economic reports from Europe which came in mixed. As such, Britain’s FTSE 100 adds 0.30 per cent to 7,534, France’s CAC 40 gains 0.22 per cent to 5,524, while German DAX 30 sheds 0.21 per cent as well, to 12,411. US stock index futures edge higher as investors have digested the Fed meeting results.
The greenback gains across the board, still supported by the FOMC decision to lift rates and the central bank’s intention to keep policy tightening in December as well as in the course of 2019. The buck received additional support from a slew of US economic data with the third estimate of the Q2GDP came in as expected. The +4.2% growth was unrevised and remained at the fastest pace in nearly four years. Interestingly, a big drawdown in inventories cut 1.7% from GDP. In means that if inventories hadn’t declined, the result would come in at near 5.5%. Considering this factor, the acceleration of a dollar recovery looks quite logical.
EURUSD failed to gain support from stronger-than-expected German CPI report as the Italy’s budget remains in focus. Investors are fearing that the new plan will further blowout the country’s deficit and put the government on a collision course with the EU officials. The budget meeting was postponed to 1800 GMT. ECB Draghi’s statement is also in focus. Technically, the pair has got back below the 1.17 figure, down to one-week low of 1.1670. This is the last line of defense ahead of the support at 1.1620 and then 1.16. However, we will see further decline in case of emerging strongly bad news on Italy’s budget. Otherwise, the euro could trim some intraday losses.
GBPUSD is on the back foot as well. The pair slipped to 1.31 and keeps marginally above the psychological level on mixed signals from Brexit developments. EU’s Barnier said that the EU continues to work for an orderly Brexit, but other officials noted that they Union is ready for any scenario. Apart from the “divorce” worries, the pound feels pressure from rising dollar as solid UD data weighted on sterling and lifted the buck across the board. Traders are also nervous ahead of the UK opposition leader Jeremy Corbyn meeting with Chief EU Negotiator Michel Barnier later today. GBPUSD needs to stage a daily close above the 1.31 level. In this case, the pound will avoid a deeper correction in the short term.
Brent crude trimmed its intraday gains and turned flat as a result of a correction from fresh four-year highs just below the $82 threshold. Despite the general sentiment in the commodity markets remains supportive, there is a growing risk of profit-taking at attractive levels, especially as the weekend is getting closer. The sellers tried to send the price below $81 but the bulls reemerged quickly which confirms the strength of the positive trend. As long as Brent keeps above the key $80 figure, the chance of rising to fresh tops remains high.
Nathan Lambert, Head of Global FX Analytical Department