European stock market climbed on Friday, with positive sentiment came from the agreement on immigration during the EU summit. However, the underlying optimism is restrained as investors continue to worry about the potential trade war a week before the first US tariffs on Chinese exports are due to take effect. As such, Britain’s FTSE 100 adds 0.61 per cent to 7,661, France’s CAC 40 gains 1.08 per cent to 5,332, while German DAX 30 rises by 1.18 per cent to 12,321. US stock index futures jumped amid gains in financials which boosted dividends.
The dollar is mostly lower today amid the risk-on environment and euro rally following the EU deal on migration issue. US core PCE price index, Fed’s preferred measure of inflation, hit the central bank’s 2% target for the first time in six years, but the report did little to ease the selling pressure in the buck. In general, the numbers haven’t had any significant impact on USD index which remains close to daily lows. The reports that Trump wants to withdraw the US from the WTO added to the downside pressure, though US Treasury Mnuchin clarified later that the report was not right. A broader picture, however, still shows that the USD uptrend remains intact, though the recent euro rally has spoiled the short-term technical picture for the greenback.
EURUSD spiked to the 20-DMA at 1.1665 earlier in the day, but since fails to accelerate the local correction, despite the dollar is on the defensive. The EU migration deal fueled EUR demand, while the euro zone CPI data, which came out as expected, failed to support the euro bulls. Moreover, the recent reports from Draghi has capped the rally as the ECB governor seems set to warn euro area leaders of lower confidence in the region and a larger impact from trade war tensions. EURUSD has been trading closer to the upper end of the intraday range, though the potential for further rise looks limited. The immediate resistance lies at the 20-DMA, while the key short-term support comes around 1.16.
The pound was also lifted by dollar weakness and the risk-on background in the global markets. Besides, the UK Q1 GDP was revised to 0.2% q/q as against 0.1% estimated earlier, which added to the upside pressure. As such, the pair spiked to 1.3183 following the release, though the price has partially corrected since amid the signs of USD stabilization. Stronger economic growth open the way to a rise in BoE rate hike expectations. However, it is yet to be seen if the Q2 numbers will confirm the recovery. From the technical point of view, GBPUSD has faced resistance at the 200-hour SMA. On the other hand, the pair receives a local support from the 20-hour SMA around the 1.31 psychological level. A daily close above this mark will confirm the easing downside pressure, but the pound needs a much stronger impetus to substantially rebound from 2018 lows reached yesterday in the 1.3050 area.
USDJPY clings to two-week highs around 110.80, being unable to make a clear break above the 111.00 key upside target. The improved risk sentiment derails the safe-haven yen demand and benefiting the USD. The pair has been gaining for a fourth day in a row, extending recovery from lows in the 109.36 region. The EU agreement on migration issues fuelled risky assets demand, but the remaining trade concerns will likely limit any further bullish attempts in the USDJPY pair as the safe haven demand could yet return before the Trump’s tariffs take effect in a week.
Brent crude has been trending north for a sixth day in a row. On Friday, the price attempted to challenge the $79 mark and faced resistance there, though remains in the upper end of the trading range. The technical outlooks has improved substantially after the asset has finally broke above the $78 threshold amid the lingering supply concerns amid the declining production in Venezuela and the upcoming sanctions against Iran. The US shale producers also show signs of declining activity, as production stagnates and inventories drop substantially. As such, the fundamental picture for Brent remains bullish, though there is a risk of profit-taking ahead of the $80 barrier.
Nathan Lambert, Head of Global FX Analytical Department