After a solid start to the new week yesterday, European stocks pulled back on Tuesday as investors turned cautious awaiting corporate results and fresh information on the coronavirus developments. According to the latest reports, Australian officials say they will effectively seal off the state of Victoria from the rest of the country after it announces a record of 127 new cases. Meanwhile, a Spanish study has cast doubt on the feasibility of herd immunity as a way of tackling the coronavirus pandemic.
Weak data out of Germany added to the negative sentiment in the regional markets as well. Industrial production rebounded a slower-than-forecast 7.5% in May, while the European Commission lowered its Eurozone economic forecast by a percentage point, now expecting a contraction of 8.7% in 2020.
Against this backdrop, the UK’s FTSE 100 sheds 1.24 percent to 6,207. Italy’s FTSE MIB edges lower by 0.14 percent to 20,027, France’s CAC 40 loses 1.05 percent to 5,028, while German DAX 30 declines by 1.20 percent to 12,580. U.S. stock index futures are falling as markets have paused their strong rally.
In currencies, the dollar index has pared some of its losses due to the prevailing risk-off sentiment. After yesterday’s rejection from the interim hurdle around 1.1350, the EURUSD pair retreats further today, with 1.13 turning into resistance again. A daily close below this level will confirm a false breakout and could bring more selling pressure in the short term.
USDJPY bounced strongly from the 20-DMA and reached the 100-DMA that capped the local rally. The pair needs to see a decisive break above the 108.00 handle so that to extend the ascent and reclaim the 200-DMA as support. However, as investor sentiment remains unstable, and the number of coronavirus cases continues to rise in several countries, such a scenario will hardly take place any time soon.
Meanwhile, oil prices are marginally lower on Tuesday. Brent crude has retreated below the $43 handle and derives support from the $42.50 area. Despite the correction from yesterday’s highs, the tone in the market remains fairly upbeat despite the prevailing selling pressure in the global financial markets. Later in the day, fresh weekly API data will come into market focus.
Nathan Lambert, Head of Global FX Analytical Department