Ahead of the widely expected G20 Summit and the key trade talks between the US and China, the the Chinese Foreign Ministry expressed hopes that the United States can show sincerity and meet China halfway, to promote a proposal that both countries can accept. But this doesn’t help to lift market sentiment which is deteriorating as the major event comes closer. Investors continue to worry about a lack of progress in talks amid the signs of slowing global growth and a number of political issues in the world. After a neutral start, European stocks turned lower, highlighting the nervous environment in the markets. As such, Italy’s FTSE MIB loses 0.10 per cent to 19,140, Britain’s FTSE 100 sheds 0.76 per cent to 6,985, France’s CAC 40 declines by 0.55 per cent to 4,978, while German DAX 30 loses 0.64 per cent to 11,225. US stock index futures edge down as well, as doubts linger ahead of the meeting between the American and Chinese presidents.
The greenback regains strength after an early dip following a somehow ‘dovish’ FOMC meeting minutes as the central bank pointed to more focus on the incoming economic data and hinted at the potential adjustment to the pace of rate hikes. On the other hand, almost all FOMC members endorsed gradual hikes, which capped the downside pressure on the dollar. Anyway, in the short term, the buck receives support amid the intensifying risk aversion against the backdrop of the crucial Summit.
The month-end positioning also plays some role as well as the euro’s post-CPI weakness. On October, the eurozone core inflation has slowed from 1.1% to 1.0%. And as we know, the weak inflation pressure in the region doesn’t bode well for the ECB rate hike prospects. The lingering concerns about Italy’s budget put the single currency under additional selling pressure and caps the upside momentum during the periods of USD weakness. Technically, the bearish tone in the EURUSD pair prevails as long as the price remains below the 1.14 resistance. The previous attempts to break above this level were failed, wjile the immediate support comes around 1.1350.
GBPUSD continues to grind lower, finishing the fourth consecutive week with declines. The pair keeps above the 1.27 threshold but the downside risks are still strong. Traders will remain alert at least until December 11, when the UK Parliament will vote on May’s deal. Should the prime minister lose this battle, the market disappointment could send the pound to fresh lows below 1.27. as the pair faded a spike above 1.28, the sterling attracted some profit-taking, and the British currency will remain an interesting trade for selling on rallies until the issue with Brexit deal becomes clear due to a high level of uncertainty.
Brent resumes the decline after some previous attempts to extend yesterday’s recovery from fresh October 2017 lows below $58. The prices struggle to regain the $60 barrier amid the continued concerns about the slowing global growth (Chinese manufacturing PMI declined to the 50 threshold last month), trade talks between the US and China (lack of progress ahead of Presidents’ meeting in Argentina), record production volumes in the US, Russia and Saudi Arabia, a weaker than expected effect from the US sanctions on Iran and uncertainty ahead of the OPEC+ meeting in Vienna next week. On the positive side, Moscow is reportedly to agree to join resuming production cuts, but the question is by how much Russia is ready to limit its record output. In other words, various fears, risk factors and uncertainty allow the bears to keep the market under control. In such environment, the downside pressure will likely remain unless traders receive a clear positive signal from OPEC members.
Nathan Lambert, Head of Global FX Analytical Department