European stock markets are trading marginally lower on Monday, declining from a six-week high amid dismal earnings and the lingering trade-war concerns. The tech sector alone fell by 0.8 per cent, following a decline in Twitter and Facebook on Friday after disappointing quarter results. Meanwhile, Heineken shares slipped by over 5 per cent amid lower-than expected second quarter results and the margin outlook which was lowered. As such, Britain’s FTSE 100 adds 0.13 per cent to 7,711, France’s CAC 40 sheds 0.11 per cent to 5,505, while German DAX 30 loses 0.17 per cent to 12,838. US stock index futures are flat ahead of further corporate results.
The greenback shows a mixed dynamics at the start of a new trading week after being unimpressed by last Friday’s GDP data which failed to surpass expectations. The market will have to digest a number of economic report and events this week, with the key release is due on Friday – the US July NFP employment report. Meanwhile, the Fed will announce its monetary policy decision on Wednesday. The central bank is expected to leave rates unchanged and prepare investors for a rate hike in September. A potentially cautious Powell’s tone amid trade-war jitters could hurt the dollar but won’t derail the bullish trend.
EURUSD is changing hands around the 1.17 threshold, unable to attract a more sustainable buying interest. Despite concerns over trade tensions between the US and the EU have eased since last week, the single currency still lacks the positive momentum to stage a rally through the 20-DMA around the 1.17 level. The German CPI data came in lower than expected, which is limiting the euro’s upside potential, in addition to a generally stable dollar. The Fed meeting results will be the next driver for the pair, though the euro zone GDP data due on Tuesday will set the short-term direction for EURUSD. Technically, the downside risks for the euro still persist.
The GBBPUSD pair struggles for direction on Monday, with the price tries to stay above the 1.31 figure. The pound looks cautious ahead of Super Thursday with the Bank of England expected to hike rates. Another factor limiting the bullish potential is the rising threat of a so-called disorderly Brexit. By the way, the risk from this front could make Carney be cautious when answering questions during his press-conference, which is a risk for sterling. For now, chances for a steady ascent in the pair are scarce, even as market participants price in a 86% probability of a rate hike this week. A daily close below the 1.31 level will confirm sterling’s vulnerability.
USDJPY consolidates ahead of the Bank of Japan policy meeting early on Tuesday. After the recent signals from the central bank, traders expect that new measures to boost inflation to be announced, which supported yen demand last week. On Monday, we see some bullish bias in the USDJPY pair as market participants may be cutting their exposure ahead of the meeting. Should the BoJ really introduce some change to its ultra-loose stimulus program, the yen could rise substantially as such a step will be significant for the Japanese regulator. In the short-term, the dollar could get back above the 111.00 mark amid buying interest around the yen.
Crude oil prices regained some strength after a consolidation late last week, with Brent jumped back above the $75 handle and touched two-week highs around $75.60. The price has regained the 20-DMA for the first time since July 11 and looks set for further gains in the short term. But the overall bullish potential will likely be limited as there is some uncertainty around the potential increase on OPEC crude oil production, after the Russian energy minister Novak hinted last Friday that the group could boost production by more than 1 mln bpd. The immediate challenge for Brent is to confirm a break above the $75 threshold.
Nathan Lambert, Head of Global FX Analytical Department