The European session was subdued as the trade rift between the US and China hung over sentiment.
Some traders were treading lightly as the trading relationship between Washington DC and Beijing has been strained. US treasury secretary, Steve Mnuchin admitted US-China trade relations have moved backwards, he also added the President Trump is likely to see China’s Xi at the end of June, so we could be in for another protracted period of trade uncertainty.
The Federal Reserve revealed the minutes from their latest meeting last night, and the US central bank are pleased with the economic growth and the state of the labour market, but at the same time, because of the ‘muted’ inflationary pressure, rates are likely to remain on hold for some time. It is worth noting, these are the minutes from a meeting that took place before US-China trade tensions took a turn for the worst, so the Fed are less likely to make a move in either direction until the China situation has stabilised. The major US indices finished in the red last night as the Fed update failed to inspire the buyers.
The US dollar index pushed higher after the Fed minutes were released, even though the announcement made it clear that a rate hike isn’t very likely in the near-term. The greenback’s appeal is that is doesn’t come with the same political or economic uncertainty as the pound or the euro.
Gold had muted reaction to the Fed’s announcement, but the metal is far closer to the May low’s rather than the highs of the month.
Stocks in Asia lost ground as the trade standoff between Washington DC and Beijing continue to weigh on sentiment.
For the bulk of the week the oil market has been strong as suggestions from OPEC and its allies that they would maintain the production cuts, prompted traders to snap up oil over supply fears. When the Energy Information Administration reported that US stockpiles surged by 4.74 million barrels, when the forecast was for a draw of 1.2 million barrels, it prompted dealers to exit their long positions. China is a major importer of oil, and the longer the trade story hangs around, it might start to chip away at the energy.
GBP/USD lost ground yesterday as sterling was still suffering from the backlash that Theresa May received from her proposed withdrawal agreement. There was speculation about Mrs May being forced to resign, but the case for her to step down might come after the European election results, where the Tories are tipped to have a dreadful performance. The Brexit Party is on track to top the poll, and that might ramp up chatter about a no-deal Brexit, but then again, it might fall on Westminster’s deaf ears.
Andrea Leadsom has quit her cabinet position as a reaction as to how Theresa May is handling Brexit, and that adds to the pressure on the Prime Minister
The pound was given a little help from the rise in UK CPI to 2.1% from 1.9%, but economists were anticipating a level of 2.2%. The core reading is a better measure of underling demand, and it held steady at 1.8% so consumer attitudes are standing still.
French flash manufacturing and services PMI reports will be released at 8.15am (UK time) and the consensus estimate is 50.0 and 50.8 respectively. The German flash manufacturing and services PMI reports will be released at 8.30am (UK time), and traders are expecting a reading of 44.8 and 55.5 respectively. Investors will be paying close attention to the German manufacturing update seeing as it has been in contraction territory throughout 2019 ,and the contraction is deepening. The decision by President Trump to delay imposing tariffs on EU cars for up to six months should take some pressure off the German car manufacturing sector.
US jobless claims will be announced at 1.30pm (UK time), and the consensus estimate is for a reading of 215,000, which would be a slight increase from 212,000 last week. The US labour market is strong, and it would take a major move in the jobless rate in order to obtain a reaction from the markets.
There are a few more economic announcements from the US today, and the flash manufacturing and services PMI reports will announced at 2.45pm (UK time), and traders are anticipating a reading of 52.5 and 53.2 respectively. The new home sale report will be announced at 3pm (UK time), and economists are expecting 675,000.
EUR/USD – has been broadly pushing lower since early January, and if the negative move continues it might target the 1.1000 area. Resistance might be found at 1.3220.
GBP/USD – has been driving lower since mid-March, and if the bearish move continues it might encounter support at the 1.2600 region. The 200-day moving average at 1.2957, might act as resistance.
EUR/GBP – has rebounded for over two weeks, and if it holds above 0.8800, it might bring 0.8939 into play. A move to the downside might bring the 50-day moving average at 0.8617 into play.
USD/JPY – while it holds below the 100-day moving average at 110.50, its outlook should remain bearish, and support might be found at 108.50. A rally might target the 112.00 region.