The trade war fears re-emerged on Wednesday, following yesterday’s Gary Cohn resignation as White House chief economic adviser who strongly opposed tariffs initiated by Trump. The departure of a prominent free trade advocate has spooked investors as it underlines the growing threat of adopting the protectionist measures by the President. Dow futures tumbled over 400 points on the news and paved the way for losses in Asia. At that, the emotional outburst took place in the morning trading, and the European indices showed a more restraint negative reaction. After an early open in the red, Britain’s FTSE gains 0.15% to 7.157,56, Germany’s DAX adds 0.21% to 12.138,93, and French CAC 40 is trading 0.27% lower on the day, at 5.156,17. Despite some relief, Wall Street may show more jittery moves.
In the currency markets, the dollars’ weak performance continues to dominate. The widespread sell-off has intensified after Cohn’s resignation, though the bearish pressure has eased lately. The EURUSD pair faced resistance in the 1.2450 area and came back to square one, threatening the 1.24 level. The euro traders’ focus is gradually shifting to the upcoming ECB meeting which is due tomorrow. Many expect the central bank to give up its easing bias and signal the intention to start policy normalization. However, considering the strong euro’s performance and now the threat of trade tensions with the US, Drahgi is unlikely to send the markets a clear “hawkish” signal. In this scenario, EURUSD may lose its upside momentum and slide back below the 20-DMA at 1.2330.
GBPUSD struggles to continue its ascent after a four-day winning streak. The rise has faltered at 20-DMA around the 1.39 mark, which turned out too stiff to handle overnight. The bulls are cautious amid the lingering Brexit risks and lack of risky assets demand in the global markets. Despite the Brexit negotiations environment has improved somehow recently, there is still no clear common ground between the parties. As a leaked document show, Brussel described the May’s EU address as “a change in tone, but not in substance”, which shows the disagreements are still there. Additional pressure on the pound comes from the GBPJPY dynamics as the cross suffers a decline amid the safe haven yen demand. However, should the sell-off in the greenback resume, GBPUSD may return to the bullish trajectory in the short term.
As for the USDJPY, the widespread risk-off mode triggered another wave of yen demand and has sent the pair to lows around the mid-105.00s. The increased selling pressure on the greenback added to the bearish impetus. Despite the pair is trading in the red on the day, the above mentioned area offered some support for the dollar as risk sentiment has improved a bit during the European trading. On the whole, the risks still point to the downside for USDJPY as long as global trade war fears dominate the markets. Should fresh negative signal from this front emerge, the 105.50 level will give up opening the way to fresh multi-month lows below the 105.25 support.
The oil market is nervously waiting for the official crude inventory data after the API reported overnight that U.S. crude supplies rose 5.7 million barrels for the week ended March 2. The data reignited market concerns over the growing activity in the US shale industry. Against this background, Brent retreated from highs above the $66 mark and even tried to break below the psychological $65 level where it met some bids and recouped daily losses. A broad decline in the global financial markets has also added the bearish pressure on crude oil prices struggling to regain the bullish momentum. Should the upcoming data by the U.S. Energy Information Administration disappoint, Brent could test $65 again.
Gold prices jumped aggressively in Asia and reached ten-day highs above the $1.340.00 mark. But traders took the spectacular rise as an opportunity to take profit at good levels. Therefore, the yellow metal had to give up all the early gains and turned red below $1.330,00. The European shares have mostly shrugged off another rush for save haven, which dented the attempts to continue the yesterday’s ascent in spot gold. The key resistance is still at $1.366, where the January 25 high lies; and as long as the metal is trading below this area, the bullish potential will remain limited.
Nathan Lambert, Head of Global FX Analytical Departament