As global market focus is attuned to trade relations between the US and China, European markets are showing a mixed-to-positive picture on Wednesday ahead of a new round of high level negotiations. Many market participants remain skeptical about resolving a number of issues, including intellectual property rights, despite the US Treasury Secretary Steven Mnuchin said earlier that he expected the two countries to make ‘significant progress’ toward a comprehensive trade agreement this week. The positive sentiment is in part capped by fresh economic signals from the euro zone. Economic sentiment fell for the seventh consecutive month in January and reached a two-year low of 106.2 points, down from 107.4 in the previous month. Investors also brace for the FOMC meeting that concludes today. As such, Britain’s FTSE 100 rallies 1.86 per cent to 6,961, France’s CAC 40 rises by 0.74 per cent to 4964, while German DAX 30 sheds 0.26 per cent to 11190. US stock index futures point to a higher open amid further rise in Apple shares and a jump in Boeing shares by nearly 6% after the quarterly earnings beat expectations.
Major currency pairs are little changed, awaiting the outcome of the Fed’s policy meeting. It is widely expected that the Federal Reserve will express a cautious and more ‘dovish’ tone and stress the data-dependence of its monetary policy amid the recent signs of slowing growth. But the central bank will hardly alter its statement significantly as the monetary authorities will likely prefer to take a wait-and-see approach in order to assess further developments in economy, trade, and politics. Should the Fed’s rhetoric come not as ‘dovish’ as expected the potential downside pressure on the buck will be limited.
EURUSD is capped by the 100-DMA this week, with bulls fail to challenge this region despite the dollar demand remains muted ahead of the major events, including trade talks, Fed’s meeting results and the key employment report due on Friday. By the way, the ADP data showed that the US economy created 213K jobs in January vs. +181K expected. The previous result was revised slightly lower but the release managed to revive the local demand for USD as expectations ahead of the Friday’s report have brightened. As such, the euro turned negative on the day and slipped to daily lows around 1.1420. Further pressure will likely be limited as the trading activity is low ahead of the FOMC verdict.
Brent crude has settled above the $61 figure amid a more positive risk sentiment. However, the barrel still lacks the impetus to make a more decisive breakout as the general investor cautious tone caps the moves these days. The FOMC meeting outcome will hardly have a significant impact on oil markets, unless the greenback suffers dramatic losses. Meanwhile, traders continue to monitor geopolitical developments as Washington said it could impose additional sanctions on Venezuela. From the technical point of view, the longer Brent oscillated below the $62 resistance, the higher the risk of a retreat below $60. In the weekly charts, there is a serious upside barrier around $63.80, where the 100-DMA lies. As long as the prices stay below this region, the bearish risks persist.
Gold refreshed eight-month highs marginally below $1.316 and attracted some profit-taking at interesting levels. As a result, the yellow metal retreated to the opening levels and then turned negative amid a widespread dollar demand after a strong ADP employment report. Should the Fed show a less ‘dovish’ tone that expected, the downside correction in gold prices could continue in the short term. In this case, traders will start to look at new entry points for longs as the longer term prospects for the bullion remain rather bright, considering a number of global risks and the declining USD appeal as a safe haven.
Nathan Lambert, Head of Global FX Analytical Department