The European morning session on Tuesday saw mixed trading as the market continues to struggle with opposing themes of optimism around ongoing US/China trade talks, fresh US tariff threats on the EU, ongoing Brexit uncertainty and firmer oil prices.
USD Down Again
The US dollar continued its decline today with the index trading lows of 96.54 as of writing, testing last week’s lows, which for now is holding as support. Looking ahead to the US session today, we have another quiet data sheet, so not much action is expected, though we could see this USD drift continue.
EUR Traders Wait for ECB
EURUSD continues to take advantage of a weaker US dollar, trading highs of 1.1276 as the rally off the 1.1194 support level continues. The European data sheet remains light until the ECB meeting on Wednesday which is the key focus of the week. However, it’s not likely to provide a platform for further EUR gains with the ECB likely to reaffirm its message of concern for the eurozone economy.
Bizarre Brexit Buildup Continues
In the UK, GBP has been less able to benefit from the weaker US dollar as confusion over Brexit continues to hamper investor sentiment. The UK is currently due to leave the EU on Friday without a deal unless it can reach one, agree on a longer extension or alternatively, cancel Brexit. GBPUSD trades 1.3084 last, still holding the 1.30 support level.
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Equities Lower on Fresh Trade Threats
Equities prices have taken a brief pause in early trading today. Despite optimism over the US/China trade talks, the market is concerned by news of Trump’s fresh tariff threats on the EU in response to Airbus subsidies which he claims have harmed Boeing’s sales. The USTR announced a list of $11 billion worth of EU goods which will come under tariffs if the WTO approves the move this summer. SPX500 is still well above the 2860.11 support but trading lower today at 2891.93 last.
Safe Haven Inflows Increasing
As with yesterday, the safe havens continue to be the strongest performers with both gold and JPY extending gains against the US dollar. Despite BOJ’s Kuroda reaffirming the bank’s commitment to maintaining an easing presence in light of ongoing global and domestic concerns, USDJPY continues to trade lower. Price is now close to testing the 111.10 support. Gold prices traded 1302.54 last, coming up just below yesterday’s session highs.
OPEC Cuts Driving Oil Higher
Despite the knock to global risk sentiment, oil prices continue their impressive rally. After blowing through the 63.40 level yesterday, prices are today climbing above the 64.36 August 2018 low. For oil, it seems the main driver continues to be the ongoing OPEC production cuts along with expectations that cuts will be extended when the group meets next in June.
Higher Oil Boosts CAD
The Canadian dollar continues to benefit from USD weakness as well as the rise in oil, with USDCAD testing last week’s 1.3294 low as of writing. The fresh rally in oil prices will be warmly welcomed by the BOC and traders will be keen to see how the bank acknowledges the situation at its next meeting.
Trade Deal Hopes Keep AUD Supported
AUD has also benefited from USD weakness. Despite the troubles in Europe, AUD remains supported by optimism around a potential US/China trade deal which would be good news for Australian exporters. AUDUSD is now trading above last week’s high at .7149 last.