US stock markets finished slightly in the red last night after President Trump stated the trade negations with China are unlikely to succeed.
Mr Trump feels that China and the EU have become soiled when it comes to trading with the US, and they have had their way for so long they won’t be willing to change. This could be a ploy by the US president to lower expectations at home, and he may not get as good a deal as he wants. The reaction from traders wasn’t enormous and this suggests that dealers aren’t too concerned yet.
Yesterday European equity markets snapped out of the sideways move they were in at the start of the week, as the FTSE 100 and DAX hit their highest since January and February respectively. The CAC 40 was the standout performer, as it reached a level not seen since the credit crisis. Eurozone equity markets are being assisted by the softer euro. During the week we saw the eurozone headline and core inflation figure fall again. This underlines the dwindling demand in the region. The prospect of the European Central Bank keeping monetary policy loose is adding to the bullish sentiment in the currency bloc.
Italy is the exception in the region, as political uncertainty is shaking investor confidence. The two parties that are in talks about possibly forming a coalition, League and Five Start Movement, are both critical of the EU and the single currency. The possibility of a eurospectic government in Rome has been weighing on Italian stocks this week.
Oil prices are a touch below the recent 42-month highs. The decision by President Trump to withdraw US support for the Iranian nuclear deal, and the prospect of reinstating sanctions on the regime, has been a major factor in the rally. Declining US oil stockpiles is a minor issue too.
OPEC announced that Brent Crude oil topping $80 per barrel won’t encourage them to loosen up on their pledge to curtail output. The cartel seems to think the firmer prices recently are down to a spike in demand, and have little to do with concerns about supply. Saudi Arabia, a very influential member within the oil producing group, are keen to float their state-owned business, Aramco, while the energy market is strong. Until the Saudi government IPO's Armaco, the country is unlikely to ease up on its tight output policy.
EUR/USD – has lost a lot of ground since the middle of April, and if the bearish move continues it could put 1.1679 on the radar. A move back above the 200-day moving average at 1.2018, could pave the way for 1.2138 to be retested.
GBP/USD – is bouncing around the 200-day moving average at 1.3555. If that level can be held, we might see a bounce back at 1.3712, and beyond that bulls might look to 1.3800. A break below 1.3545 could send it to 1.3300.
EUR/GBP – has started to turn lower since the start of May, and a break below 0.8680 could pave the way for 0.8600 to be tested. A break above 0.8870, the 200-day moving average, might bring 0.8967 into play.
USD/JPY – have been pushing higher since March and resistance might come into play at 111.48. A pullback might find support in the 109.00 region.
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