Despite the global optimism around NAFTA – US and Canada expressed hopes that the talks over the terms of the agreement will meet a Friday deadline – European markets are trading lower on Thursday, weighted down by the never-ending concerns of the US-China trade tensions as another portion of tariffs on Chinese goods takes effect later in September. The dismal economic numbers added to the negative sentiment in the region as the economic confidence in the euro area fell in August, while German CPI came in lower than expected. As such, Britain’s FTSE 100 sheds 0.59 per cent to 7,518, France’s CAC 40 loses 0.46 per cent to 5,476, while German DAX 30 declines by 0.58 per cent to 12,488. US stock index futures set for a negative open as investors continue to monitor global trade developments with caution.
The dollar is mixed on Thursday, with European currencies have been trading with a bearish bias after a rally, while the Japanese yen is on the offensive as the risk-off tone reemerges gradually. The euro was disappointed by weak German CPI and euro zone economic confidence data. Additionally, traders start to show less willingness to buy the single currency amid the growing concerns over the developments in Italy, where budget and immigrants issues arose. As such, the potential for further rise in the pair now looks limited even as the buck remains on a weaker side. The US July PCE core inflation came in at 2.0 per cent, as expected. The dollar declined marginally in a knee-jerk reaction as traders hoped to see more robust results. Nevertheless, the overall US economic fundamentals remain solid, and there are no meaningful risk factors for the greenback from this front. Technically, EURUSD needs first to regain the 1.17 threshold in order to target the 1.1730 area and then the 100-DMA at 1.1750.
The pound is flat today, after yesterday’s rally which took the par to almost one-month highs in the 1.3040 area. The price keeps above the 1.30 area and it’s a good technical signal for the short-term bulls as the currency could resume the ascent should the pair refrain from a downside correction in the nearest future. On the other hand, there is a risk of profit-taking which could take place on any negative signal from the Brexit front, or in case of risk aversion which will fuel dollar demand across the board. So traders will continue to closely monitor the news on the UK-EU talks as well as the global trade developments, where the US-China trade jitters remain in focus. The immediate upside target comes at 1.3050, while on the downside, the nearest support is 1.30.
The USDJPY pair switched into a bearish mode after two days of gains, with the price has retreated from highs marginally below 112.00. The dollar is changing hands around the daily low of 111.40 following the US economic data release, with there are little signs of resuming the rise at the moment. However, the bearish potential is limited as well – there is still a cluster of moving averages around the 111.00 level which could serve as a stiff support should the selling pressure intensify. The risk sentiment is the key driver for the pair at the moment, with the current investor behavior signals that things could get worse in the coming days. So the mentioned support levels could be at risk, if the potential pressure comes strong enough.
Brent crude continues to trend higher, with prices have extended gains to fresh 1.5-month high of $78.23 recently, where the barrels faces some offers and retreated partially, trying to cling to the $78 mark. The overall sentiment in the market remains positive as the upcoming Iranian sanctions, weaker dollar and bullish inventory numbers from the US inspire bulls. But Brent will hardly break the $80 threshold any time soon as the risk sentiment is getting worse, and the US-China trade war will soon get back into market focus, which could serve as a catalyst for profit-taking at attractive levels.
Nathan Lambert, Head of Global FX Analytical Department