European stocks are steady on Wednesday, continuing to digest the US-Mexico agreement and gradually shifting focus to Canada that is expected to join the trade deal to form a new NAFTA. Initially, the progress on the deal fuelled hopes for easing the US-China trade tensions. But the looming deadline for public comment on Trump’s increased tariffs on $200 billion of Chinese goods (September 5) makes investors nervous amid the potential trade war escalation. The Turkish factor doesn’t add the optimism as well – the lira continues to decline despite central bank efforts to tighten liquidity. As such, Britain’s FTSE 100 sheds 0.30 per cent to 7,594, France’s CAC 40 gains 0.14 per cent to 5,492, while German DAX 30 rises by just 0.09 per cent to 12,538. US stock index futures are slightly higher as US-Canada trade talks resume.
The dollar is mixed today, with euro is on the defensive after three days of gains. The buck lacks the recovery impetus as the 10-year Treasury yields are down 1.3 basis points at 2.87 per cent, and a mild risk-on sentiment still persists in the global financial markets, which derails USD demand. EURUSD has slipped from August high of 1.1733 yesterday, extending the correction to 1.1650 and threatening the 1.16 support. The single currency was under pressure amid the reports that the Italian government has called the ECB to pass a new program on bond purchases in order to shield the country’s debt from financial speculation. Another risk for the pair is the potential worsening of the market sentiment around the US-China trade dispute. However, before this, the buck could yet come under additional pressure should the US make a deal with Canada later this week.
GBPUSD was rejected from daily low of 1.2845, where the 20-DMA lies and turned green on the day, but the momentum lacks follow-through as the bearish pressure on the greenback has eased, while the Brexit developments leave much to be desired. In particular, there are reports that the EU and UK decided to amend an already delayed end-October deadline for the final withdrawal deal to mid-November. This step confirms that the talks still don’t bring any substantial progress on major issues including the Irish boarder. The pound however managed to climb to daily highs around 1.29 and doesn’t want to give up recent gains. But should the dollar demand reemerge in the nearest future, the pair will have to retreat with a target at 1.28 and lower.
USDJPY has been consolidating with a timid bullish bias in the daily charts. The pair managed to stay above the 111.00 support earlier in the day and makes shallow recovery attempts. The overall market activity is rather muted, so the price is confined to a tight intraday range. The key on the upside is the 111.50 area as a break above this level will open the way to 112.00. On the downside, there is a cluster of moving averages in the 111.10-110.85 region which may serve as support should the potential pressure on the dollar be limited in the short term.
Gold prices are attempting to resume the ascent from lows after yesterday’s correction from two-week highs above $1,214. The yellow metal is staying above $1,200, but looks vulnerable to further losses despite the recent improvement in the technical picture. Investor focus is still on the dollar sentiment. The buck could proceed to a more sustainable recovery should the risk-on environment turn sour. On the other hand, the US-Canada trade deal could boost risk and put the greenback under a more intense pressure. As such, gold prices may yet regain the $1,214 threshold and target $1,220 this week.
Nathan Lambert, Head of Global FX Analytical Department