European indices fall on tariff fears with US
Almost all European indices were trading in the red this afternoon, plummeting from three-week highs. Fear gripped the market when the Office of the US Trade Representative announced plans to modify tariffs on EU imports. The proposal suggests tariffs as high as 25% on a range of European goods including liquor, olive, cheese, and wine. Washington also plans to impose a 15% tariff on Airbus aircraft, despite the company’s efforts to ensure compliance with the WTO’s decision on state aid. Shares of Airbus opened 1.51% lower in Paris on the news. The German DAX 30 slipped 0.29%, while the CAC 40 lost 0.25% and the Stoxx 600 fell by 0.45%. The decline in the FTSE 100 was sharper, by 1.21%.
Positive EU data failed to revive investor sentiment this afternoon. France’s unemployment rate declined to 7.1% in the second quarter, the lowest level since 1983. Wholesale prices in Germany declined 2.6% in July.
After an initial spike in oil prices over the vaccine deal between US and Moderna, Brent crude prices traded lower to $45.2 per barrel. This followed a monthly report by OPEC, which predicted that global oil demand will contract more steeply than was earlier projected. The International Energy Agency has also slashed its oil demand forecast for 2020, its first downgrade in many months.
The US Dollar continued to weaken against a basket of currencies. The Dollar index fell to 93.1, its lowest level in a week, due to the absence of any signs of progress around the US coronavirus package.
In upcoming economic data, the US initial jobless claims weekly report will be the one to look out for. The report is expected to show a slight decline to 1.12 million in the latest week, from 1.19 million in the week ending August 8. The US 30-year bond auction is also in the line-up today, which will have a substantial impact on the greenback.
Despite dismal equity markets, the Euro maintained its strength against a weak US Dollar. After dipping to a low of 1.1709 on Wednesday, the Euro has made a sharp comeback and was trading at 1.1832 around 9:30 a.m. GMT. It has recaptured the 50-day SMA on the 4-hour chart, indicating that bulls are in control for now. The pair could now face resistance at the 1.1850 level. RSI remains below 70, which suggests overbought conditions.
Washington’s fiscal problems and the country’s sluggish labour market weighed on the US Dollar. The greenback continues to suffer in an uncertain environment, trading lower at 106.75. The pair faced resistance at the 107 level and subsequently retracted to the nearest support level of the 50-day EMA at 106. In case, the pair breaches this support level, it could gain more downside momentum to rest at the next 20-day EMA support level at 106.20.
After declining to one-week lows on Wednesday, the GBP/USD regained significant upward momentum this afternoon. The pair is now eyeing the 1.31 mark, mainly due to softness in the US Dollar. Technical levels to watch will be the 20-day SMA at 1.2919 and 50-day SMA at 1.2687. The US initial jobless claims report, scheduled for release later in the day, will determine the fate of the US Dollar this evening and may offer attractive trading opportunities in the US session.