European markets are losing steam on Wednesday and turned slightly lower as trade concerns persist and prevent stocks from a sustainable rally. Trump softened his tone on the trade wat yesterday and insisted talks had not collapsed, which supported global markets. However, investors remain nervous against the backdrop of recent escalation in trade tensions. In Europe, the additional selling pressure today comes from Italy, where the deputy prime minister said Rome was ready to break EU fiscal rules. As a result, Italian stocks are leading losses in the region, with FTSE MIB sheds 0.81 per cent to 20,723. In other indices, the UK FTSE 100 adds 0.05 per cent to 7,245, France’s CAC 40 is down 0.40 percent to 5,319, while German DAX 30 declined by 0.47 per cent to 11,935. US stock index futures point to a lower open as investors switch focus to the economic data.
EURUSD is directionless around the 1.12 figure after two days of losses. German Q1 GDP came in as expected at 0.4% q/q, which is the first quarter growth since Q2 2018. On an annualized basis, the economy grew 0.6%, a bit lower than expected. The report failed to affect the pair significantly, with the euro generally remained under pressure after the recovery attempts struggled at 1.1216. As long as the prices remain below the 1.1260 area, the downside risks persist. Should dollar demand pick up in the short term, the common currency may lose the 1.12 handle. In this case, the technical outlook for the pair will worsen further.
USDJPY turned red after a short-term recovery yesterday. The pair holds around the daily lows around 109.30, still threatening the 109.00 support area. The fact that the greenback can’t stage a sustainable recovery confirms that risk aversion still persists and the overall investor sentiment remains depressed and cautious. The Japanese yen is still supported by concerns over further escalation of the trade war, and some positive comments from Trump on Tuesday had only a limited positive influence on market sentiment. Technically, a measured selling pressure on global stocks suggests the 109.00 region could act as a support level again.
In oil markets, Brent gained 1.3% on Tuesday and tried to extend the recovery earlier today but once again encountered resistance above $71 and turned negative in the daily charts. The barrel remains sensitive to global sentiment and followed the declines in European stocks and US futures. The market was also disappointed by API report, which showed that U.S. crude stockpiles rose last week by 8.6 million barrels in the week to May 10 to 477.8 million, while analysts expected a decrease of 800,000 barrels. At the same time, the downside potential for Brent remains limited as the market is supported by geopolitics. Saudi Arabia said on Tuesday that armed drones struck two of its oil pumping stations, two days after the sabotage of oil tankers near the United Arab Emirates.
Nathan Lambert, Head of Global FX Analytical Department