Worries about a global trade war continue to hang over the world stocks on Monday. Though risk aversion has receded somewhat recently. The European indices remain under the overall pressure, with prospect of a “hung parliament” in Italy adds to the uneasy background. Meanwhile, in Germany, Social Democrats voted to support a grand coalition government, which partially eases pressure on the benchmarks. As s result, the main regional indices are trying to stage a mild recovery during the afternoon trading. The Britain’s FTSE 100, which dropped to its lowest level in more than a year, added 0.23 per cent to 7.086,18, the French CAC 40 rose 0.19 per cent to 5.146,29, and the German DAX 30 gained 0.58 per cent to 11.984,33. In the currency markets the greenback is attempting to shrug off the “protectionist” pressure and return into the positive territory against most major rivals. The EURUSD pair is on the defensive today, as the Italian election results and the dismal euro area economic numbers reduce the euro’s attractiveness. The composite PMI slipped to 57.1 last month from 58.8 in January, showing signs of a slowing economic momentum in the region. Besides, the drop in the Sentix index was much greater than expected and retail sales contracted 0.1% MoM in February after a fall by 1.0% in the previous month. As a result, the pair slipped back below the 1.23 mark, though so far keeps above the Friday’s lows around 1.2250. A break below this support area will open the way to the 1.22 level. The key event for the single currency this week is the ECB meeting due on Thursday. GBPUSD slowly but steadily climbs higher for the third day in a row. The recent Brexit concerns have receded somewhat in to the background, though risk from this side remain and keep the pound bulls in control. The recent British service PMI gave some support to the pair as the index jumped to 54.5 from 53.0 in January and confirmed the solid economic activity in the country, despite Brexit risks. However, at this stage the bullish prospect for the pair remains limited, as the risk-off trade continues to prevail, and the country is yet to resolve major issues with the EU. The downside risks for GBPUSD prevail as long as the price is below the 20-DMA around the psychological 1.39 mark.
USDJPY is consolidating in a tight range around mid-105.00s, with gains a limited by the 105.70 mark. The risk aversion has abated a bit, but it’s not enough to call a bottom for the greenback which remains fragile on the back of trade tensions between the US and its trading partners threatening to take retaliatory measures in response to Trumps’ tariffs. Therefore, the risk of testing the key downside target at 105.00 remain as well as the threat of another major sell-off in the risky assets fuelling safe-haven yen demand.
Crude oil prices struggle to regain bullish momentum following a mild recovery on Friday. Brent tried to come back above the 65.00 level but has met offers and retreated again, trading 0.5% lower on the day. At that, as long as the price remains above the 64.00 mark, the downside risk is limited. As baker Hughes has reported, the number of oil rigs in the US reached a fresh three-year high last week, which fuels concerns over further increase in shale oil production, to new record volumes. Today, the CERAWeek conference in Houston has started, where the OPEC oil ministers are expected to hold a dinner with U.S. shale firms. Positive signals from this meeting could support local demand for Brent and prevent prices from falling further.
Gold prices reached highs around $1.327,70 in the morning bit failed to keep gains and retreated on the back of recovery in European stocks. The yellow metal returned to the opening levels and is now trying to decide on its further direction. Some signs of US dollar recovery are limiting gold’s upside potential. On the other hand, the threat of another risk-off wave in the global financial markets signals the bullish momentum in the metal may yet reappear.
Nathan Lambert, Head of Global FX Analytical Departament