European stocks and US index futures extended their losses first thing this morning, tracking the falls across Asia Pacific where the Shanghai Composite fell almost 4% overnight, before rebounding off their lows on the back of stronger European data. The Dollar Index fell to its lowest level since 2018 as this year’s low that was formed in March, during the height of the coronavirus pandemic, was breached. Gold and silver remained near recent highs following the big gains this week. Copper was lower, while crude oil prices, which retreated the day before, were somewhat stable at the time of writing.
Sentiment was not significantly bearish, but if the markets fail to recover more significantly later on then we might see an acceleration in the selling of risk assets as investors lighten up ahead of the weekend. Chief among investor worries is fears over the pace of the economic recovery and valuation concerns. The US equity markets have been pricing in a V-shaped recovery amid all the fiscal and monetary stimulus packages that have been announced. However, coming out of lockdown has proven to be trickier than many had expected. Reported deaths relating to Covid-19 in Florida and California have broken records, while cases of the virus have remained stubbornly high across many US states. News of an unexpected rise in jobless claims on Thursday has raised concerns that the recovery may have already stalled at the world’s largest economy.
However, in Europe, the PMIs continued to recover at a sharper pace than expected. This is undoubtedly because of the fact lockdown measures have eased quicker than in the US and virus cases have fallen sharply. Indeed, according to sector PMIs, demand for services have risen impressively in the UK (56.6 from 47.1), Germany (56.7 from 47.3) and across the Eurozone (55.1 from 48.3), albeit from a low base. What’s more, UK retail sales again jumped by more than 10%, beating expectations for a smaller bounce. Today’s data from Europe certainly points to an economic recovery. That said, a lot of this is due to pent-up demand. It will be interesting to see how consumer spending will evolve in the coming months. For now, though, this should help to keep both the pound and euro supported against the buck, even if concerns over Brexit may mean the upside will be limited for the cable.
This is how today’s data releases look like and what’s coming up next:
In the afternoon, it is worth keeping an eye on US technology stocks after several household names sold off on Thursday, weighing on the Nasdaq 100. For FX traders, the USD/JPY is an interesting pair to watch because rates are looking quite heavy, pointing to a potential breakdown below the 106 handle. But the UJ is not as heavy as the Dollar Index, which looks quite bearish as it tests its March low. Look at the yearly candle in the inset, showing an inverted hammer. But the year hasn’t obviously closed and there is a potential for DXY to form a double bottom here. However, the underlying trend is bearish for the dollar, so we continue to favour fading the rips in the buck. 
