Indices Try to Catch a Breath. Great Session for USD

Almost all indices collapse and aim for long-term lows.

SP500 is testing the 23,6% Fibonacci.

DAX is very close to reach the 38,2% Fibonacci.

FTSE breaks the lower line of the wedge formation.

CAC reaches crucial support from the first half of the year.

EURUSD breaks the lower line of the flag formation.

EURAUD eventually bounces from the upper line of the sideways trend.

EURGBP in a flag but with inclinations for an upswing.

AUDCHF goes lower after the bounce from a crucial resistance.

WTI Oil breaks the lower line of the symmetric triangle.

Gold goes lower after the escape from the mid-term pennant.

USDPLN breaks the neckline of the inverse Head & Shoulders pattern, it looks bullish.

For a look at all of today’s economic events, check out our economic calendar.

Tips On How To Trade The Currency Pair EUR/GBP

EUR is the Euro, the official currency of most European countries, including Italy, France, Germany, Spain, etc.

Conversely, the official currency of the United Kingdom is GPB (Pound Sterling). Both EUR and GBP currencies have higher individual values than the USD (United States Dollar). If you intend to trade the EUR/GBP, here are tips that can help you.

Tips On How To Trade The Currency Pair EUR/GBP

Understand the base and quote currency

When it comes to trading forex pairs, there’s always a base and quote currency. The pair results from a price comparison of the base and quote currency, which indicates the needed amount of the quote currency for buying the base currency.

In the case of EUR/GBP, the EUR is the base currency, as it comes first, while the GBP is the quote currency, as it comes second.

So, when it comes to trading EUR/GBP, we are looking at how much GBP is needed to purchase EUR. In other words, you are selling GBP to buy EUR.

Furthermore, there are two prices involved, which include the bid price and the asking price. The bid price is the quote currency amount for buying the base currency, while the asking price implies the quote currency amount acquired after selling the base currency.

Consider its low volatility

Volatility has to do with how fast or slow trading prices change. The forex market is volatile, considering the large number of currencies involved. However, the EUR/GBP pair has low volatility; their prices don’t change significantly very often.

As mentioned earlier, both EUR and GBP are among the most strongest currencies in the world. European countries use the Euro while the UK uses the Pound Sterling; hence, the EUR/GBP is a relatively stable currency pair, which makes them heavily traded. A major change in their prices would draw massive attention in the forex market and outside it.

Follow the economic news

When trading any currency pair via forex brokerage houses, it is ideal to follow the economic news so you don’t miss any event that could drive a major price change. This applies as well for the EUR/GBP currency pair; besides, EU countries and the UK are involved.

You should not miss important updates, including new monetary policies, capital input, capital withdrawals, inflation, etc. Notably, the short-term rates of both currencies are influenced by economic data announcements.

Therefore, you should check daily in the morning and evening for economic updates about the GBP and EUR. Furthermore, it is ideal to check political news because they can influence investor decisions.

Trade at the right hours

Trading activity in the Forex market usually reaches a peak during certain periods at major financial cities in the world. Hence, Forex trading is distinguished into three activity sessions: North America (New York), European (London), and Asian (Tokyo) sessions. Notably, the European Forex session in London starts from 7 am to 4 pm (GMT).

Although you can trade at any time in the 24/7 forex market, it is ideal to trade the EUR/GBP pair during the European Forex session; a simple way to remember this is “don’t trade when it is dark in London.”

Look out for trends

If you want to perform a profitable EUR/GBP trade, it is vital to identify ongoing trends. For the EUR/GBP pair, you should either use the EUR/GBP price analysis or a technical trend indicator.

Take, for instance, the 200-Day Period Simple Moving Average; if the chart is trending down and the prices shift below the moving average, it is a bearish trend. To avoid getting false trend signals, you should follow only short signals of the EUR/GBP pair.

Similarly, if the chart is trending up and the prices shift above the moving average, it’s an upward trend. To avoid getting false trend signals, you can follow only long signals of the pair.

Look out for correlation with other pairs

While you have your eyes set on EUR and GBP, you should always look out for other forex pairs and how they correlate. Ideally, you should look out for correlation from the past three months.

Pairs with strong correlation are likely to have EUR or GBP; For example, EUR/JPY and GBP/JPY.

With correlation, you can get trading signals for the EUR/GBP pair. Likewise, currencies with strong correlation are ideal for hedging.

Conclusion

Forex trading is a notable means for making money on the internet, while the EUR/GBP pair is a profitable one to trade.

However, as always advised, Forex trading is risky; there’s no guarantee of returns or profits. Therefore, you should only put in what you can afford to lose.

EURGBP Analysis Ahead of Fishy Brexit Talks

GBP showed significant strength on Friday amid new Brexit negotiation hopes. The deal has faced another dilemma – the fish. UK wants the EU vessels to stay out of the UK waters after the Brexit, while the EU would like to keep access to the UK waters to their vessels after the Brexit under the Common Fisheries Policy. UK officials claim that France and the Netherlands use super-trawlers to empty the UK waters and the PM Boris Johnson vowed to do everything to protect the UK fisheries.

The upcoming week will be a great test for both currencies not only by virtue of the EU summit in Brussels but as remarkable data will be published for both sides of the deal: the UK – Unemployment change, for EU – ZEW Current Conditions and ZEW Economic Sentiment. If the UK leaders are able to convince the EU leaders to accept the deal without postponing it again, the Euro may weaken and continue to fall, if it’s postponed then the GBP will fall against major currencies on weak employment data.

Asides the unemployment data, the upcoming ‘hotspot’ restrictions in the UK, which might eliminate small and medium businesses and result in a labor layoff, could back the downfall of the Pound.

The EUR/GBP pair continued the downtrend after the test of a high at 0.92924 on September 11, remarkable the day UK announced the new trade-deal with Japan.

EUR/GBP quote on Overbit

Two patterns to watch on pair’s 4H-chart are “Bullish flag” and “Triangle”. Euro remained above a crucial support and resistance level and halted the fall at 0.90680, if the pair remains above that level amid UK and EU data, it might as well continue upwards to test the dynamic resistance (upper edge of a triangle once again) at 0.91200. Below this level will result in the pair to test the following static support at 0.90490 if that support is broken then the pair will drop deeper towards 0.90100 to test the static and dynamic resistance, where the “Flag pattern” will be confirmed and the pair will most likely bounce back and continue bullish

Yet MACD is signaling the trend reversal I highly advise to trade with caution as the upcoming week will be highly volatile for both currencies.

For a look at all of today’s economic events, check out our economic calendar.

New Brexit Talks Hits GBP

The European Union is puzzled by such a proposal – trade under the WTO rules involves the restoration of full-fledged borders, which will lead to huge transport delays at the border.

Pound against USD is below the dynamic support of June 30 and a static support of 1.31700, hence GBP probably is going to continue the downtrend until 1.3100 – 1.3000, where an important support level and Fibonacci 0.382 are in position.

GBPUSD quote on Overbit

The same pattern is seen on another major pair traded against GBP – Japanese Yen. At the time of writing this article, the GBPJPY quote on Overbit is 139.576 which is below an important resistance of 139.860 – 139.900 and is below the dynamic support of June 30, hence the drop may continue down to 138.536 – minor support and Fibonacci 0.382 level and to a major support of 138.156

GBPJPY quote on Overbit

EURGBP on the opposite is gaining, the pair is currently traded above the down-trend channel and looks like it will continue the bullish run to test resistances at 0.90585 – 0.91253. If the tensions between EU and GB continue on trade regulations and none of the sides accept the trade conditions between the two, the Pound may continue the downtrend further.

EURGBP quote on Overbit
For a look at all of today’s economic events, check out our economic calendar.

EUR/GBP Reversal Prepares for Bullish Break Above 0.9050

The EUR/GBP is building a range above the 21 ema zone (green box) after breaking above the resistance trend lines (dotted purple). The EUR/GBP could be ready for a strong bullish breakout.

Price Charts and Technical Analysis

EUR/GBP 4 hour chart

The EUR/GBP needs to break above the resistance of the previous wave 4. A bullish breakout would confirm the trend and momentum change from down to up. Bullish price action could take place within a wave 3 (purple). The first target is the Wizz 6 level and the previous top. But the start of a wave 3 could push it for a new high and beyond. A bull flag pattern would help confirm the uptrend view (green check).

The EUR/GBP could also break south but the previous bottom is likely to hold. An inverted head and shoulders pattern is likely to act as support for a bullish bounce. Only a break below the bottom invalidates (red x) the current bullish outlook on the EG.

EUR/GBP 4 hour chart

Good trading,

Chris Svorcik

The analysis has been done with the indicators and template from the SWAT method (simple wave analysis and trading). For more daily technical and wave analysis and updates, sign-up to our newsletter

For a look at all of today’s economic events, check out our economic calendar.

Pound Braces for Drama as Brexit Talks Resume

After officially leaving the European Union (EU) almost 6 months ago, uncertainty remains the name of the game as both sides struggle to make headway on Britain’s future relationship with Europe.

The sixth round of Brexit talks resumes today after the previous disappointment. Sterling may be flung into the direct firing line if the United Kingdom and Europe and unable to bridge their difference on EU’s access to British fishing waters and the UK’s alignment to EU rules.

If you are looking for some action and volatility, Pound crosses could be the place to be amid fears around an extended deadlock leading to a no-deal Brexit outcome by the end of 2020.

The GBPUSD continues to ride higher on Dollar weakness with prices slamming into the 1.2670 resistance level.

Yesterday’s rebound from the 1.2550 resistance levels looks strong, with the daily close above1.2650 signalling further upside in the short to medium term. Technical lagging indicators like the 50 & 100 Simple Moving Average support the upside bias while the Moving Average Convergence Divergence (MACD) has also crossed to the upside. The current bullish momentum may send the GBPUSD towards 1.2750. Alternatively, a move back towards 1.2550 suggests that a technical correction could be in play before prices rebound higher.

GBPJPY clears 136.00

The GBPJPY entered the week on a solid note, jumping over 150 pips to clear the 136.00 resistance level. This currency pair is turning bullish on the daily charts with 137.00 acting as the next level of interest.

As the market mood improves on coronavirus vaccine hopes and EU leaders striking a deal on a landmark recovery fund, safe-haven assets like the Japanese Yen are likely to weaken. The GBPJPY is likely to ride higher on Yen weakness in the short term, with a breakout above 137.00 opening the doors towards 138.50.

On the other hand, this party could be crashed by bears if Brexit talks fall apart this week. A move back below 135.00 may inspire a decline towards 133.60 and 134.00.

EURGBP slips towards 0.9000

According to the technicals, the EURGBP is still bullish on the daily charts.

There have been consistently higher highs and higher lows while the Moving Average Convergence Divergence (MACD) trades to the upside. However, prices are trading below the 20 Simple Moving Average. A breakdown below the 0.9000 support level could signal a decline towards 0.8850. If 0.9000 proves to be reliable support, the EURGBP has the potential to rebound towards 0.9100.

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EU Leaders Finally Agree on Pandemic Fiscal Package

US markets saw yet another record for the Nasdaq, while the S&P500 closed at its highest level since late February.

For the last few days all eyes have been on the political theatre going on in Brussels as EU leaders strive to cobble together a recovery fund that will somehow create a consensus between the various interests of 27 member states, and its leaders and deliver help to the likes of Spain, Italy and Greece, whose economies have been hit hardest by the coronavirus pandemic.

The latest compromise appears to be in the form of grants of €390bn, down from the initial €500bn, with low interest loans of €360bn, with the total sum of the pandemic recovery fund set to remain at €750bn. The leaders also agreed as a €1trn budget for the period of the next 7 years.

The Netherlands, led by PM Mark Rutte had insisted on certain changes being made, including a much lower grants figure, however it appears a compromise has been found in the form of a larger rebate. This would be bigger than the one they receive now under current EU budget rules.

These larger rebates would also apply to the other hold-outs including Austria, Denmark and Sweden. The Dutch PM also secured an emergency brake that would allow any country that was not satisfied with attempts by other countries to honour reform promises to call a halt to any monies being allocated to these countries. This brake, however would be time limited to approximately three months, however there were no details as to how any sanction would be applied if a breach were discovered.

The talks at the weekend which have spilled over into this week, have also touched upon the upcoming EU budget, which will need to be increased substantially in the coming years, not only to deal with the current pandemic, but for the EU to be able to meet its climate targets. With the UK leaving the bloc that will also mean much higher contributions from the remaining member nations, something that is proving to be somewhat of a sore spot.

While markets have reacted positively to the prospect that some form of deal will be agreed, with the German DAX leading the way in Europe, it will still need to be approved by all other EU member parliaments over the coming weeks.

This will mean any funds are unlikely to be available until the beginning of next year at the earliest, and even if all the funds are made available, the money will be nowhere near enough to compensate for the billions of euros of lost tax revenue, that has pushed southern European countries even deeper into their fiscal black holes.

While markets have been buoyed by the prospect that this deal has been agreed, the money in question is but a fraction of what is required to help the likes of Italy, Spain and Greece get out of their current difficulties. This deal is likely to be yet another sticking plaster on a dysfunctional monetary union, as it lurches from one crisis to another. On a more positive note what this agreement does do is establish the principal of some form of joint debt issuance, and it is this which can be construed as a baby step towards wider fiscal integration.

As a result today’s European session is expected to see a higher open, with the DAX set to open at its highest level in almost 5 months. .

Later this morning we’ll get another look under the hood of the UK economy and the amount of extra borrowing that the UK government undertook in June to keep the economic motor of the UK ticking over in response to the current coronavirus crisis.

The previous two months saw the UK government has borrow over £100bn, an exceptional post war intervention to support an economic shock that will reverberate for years to come. In April we saw £47.8bn, added to the national debt, followed by another £54.5bn in May as the UK treasury paid the wages of over 8m private sector employees.

Since then we’ve since discovered that the UK government shelled out over £15bn in respect of PPE to deal with the crisis, more money than it spends on the Home Office, Treasury and Foreign Office combined, while the number of jobs getting government support has risen to over 10m. Expectations are for another £40bn to be added to the national debt.

At some point the UK government will have to look at how they intend to pay for all of this, but for now with 2- and 5-year yields in negative territory, and 10 year yields below 0.2%, it isn’t something they need to be too concerned about right now.

We’re expecting to see another big number today for the June numbers, as the costs of the furlough scheme continue to rack up, and UK borrowing moves above 100% of GDP for the first time since World War Two.

The US dollar slipped to a one-month low yesterday as optimism over a deal in Brussels pushed the euro close to its best levels this year. The pound also enjoyed some decent gains ahead of the release of more economic data this week which is likely to lay bare the fairly lacklustre nature of the economic rebound as lockdown restrictions continue to be eased.

Bank of England chief economist Andrew Haldane maintained his recent view that the UK economic rebound was likely to be v-shaped in nature despite the announcement of further job cuts, this time from high street retailer Marks and Spencer yesterday. His view does appear to be a minority one on the MPC, with the declines in the pound seen last week driven by market expectations of a further cut in interest rates by the Bank of England at its September meeting.

EURUSD – broke above 1.1370 last week and has continued to edge higher with the highs this year at 1.1495 the next key resistance, after breaking above the 200-week MA, for the first time since June last year. A break above the 1.1500 level opens up a potential move towards 1.1570 and the 2019 highs. Support comes in at the 1.1370 level.

GBPUSD – another solid day yesterday, the pound has support at the 1.2500 area, with resistance currently at the 1.2680 area as well as the 200-day MA at 1. 2720. The larger resistance remains at the 1.2770 area as well as the June highs at 1.2815.

EURGBP – the June peaks at 0.9175/80 remain a key resistance zone, and the failure thus far to move beyond them does keep the bias slightly negative for a return to the 50-day MA at 0.8980, as well as the July lows at 0.8920.

USDJPY – currently has fairly solid support down near the 106.50 area, and resistance up near 107.50, as well as cloud resistance at the 108.00 level.

FTSE100 is expected to open 37 points higher at 6,298

DAX is expected to open 103 points higher at 13,150

CAC40 is expected to open 32 points higher at 5,125

For a look at all of today’s economic events, check out our economic calendar.

By Michael Hewson (Chief Market Analyst at CMC Markets UK)

EU Rescue Fund Remains in Focus, Markets Calm

Not much was achieved at the European meeting on Friday, and that wasn’t exactly a surprise. The €750 billion rescue package was at the centre of the talks, and the original proposal was that €500 billion would be allocated as grants, and that €250 billion be distributed as loans.

The Netherlands, Austria, Sweden and Denmark, expressed opposition to €500 billion being allocated as grants without conditions. There were concerns that funds wouldn’t be used to tackle the health crisis. The countries in question, have been dubbed the ‘frugal four’, and they also called into question the size of the proposed grants, as they would prefer to see a higher percentage of loans.

Talks continued over the weekend. In a bid to win over the ‘frugal four’ it was suggested that €400 billion be dished out as grants rather than €500 billion. It was reported The Netherlands and Austria are pushing for €390 billion in grants, and €360 billion in loans, but nothing has been agreed upon yet. Discussions will continue this afternoon.

It was put forward that a ‘super emergency break’ be included in the package, meaning that any one government could question the use of the funds that are being deployed. Such a move would help ensure that the cash was been used for its appropriate purpose. The sooner the bloc can agree on the terms of the rescue the better for everyone, especially countries like Spain and Italy, which were hard hit by the health crisis, and are rely heavily on tourism.

Stocks in Asia are mixed as the CSI 300 is showing solid gains, the Nikkei 225 is flat, while the Hang Seng has turned positive.

The US posted mixed data on Friday. Building permits for June were 1.24 million, and that was a small increase from the 1.22 million in the previous update. The housing starts reading was 1.18 million, which was a decent jump on the 1.01 million registered in May. The preliminary reading of the University of Michigan consumer sentiment was 73.2 in July, its lowest in three months. The heath situation deteriorated in recent weeks, and a number of states have paused the reopening of their economies. That is probably why consumer sentiment slipped.

The US dollar had a negative run last week and on Wednesday it fell to its lowest level in nearly one month. In the last few months the currency has been a popular flight to quality play, and conversely, when dealers have been in risk-on mode, it has typically suffered. Risk appetite has been a bigger factor in the dollar’s moves lately, than economic indicators.

Inflation in the eurozone ticked up in June to 0.3% from 0.1%, but the core reading cooled to 0.1% from 0.3%. The core reading is often deemed to be a better gauge of underlying demand as it removes commodity prices from the measurement. Last week, Christine Lagarde, the head of the ECB, said that inflation is expected to remain low.

In the first week in July, gold hit is highest level since September 2011, but last week it traded sideways. The commodity has a track record of being a safe haven trade, but since the greenback has also become a popular risk-off trade, that has reduced gold’s volatility, due to their inverse relation relationship.

Oil lost a little ground last week as it was announced that OPEC+ will increase their output as of next month. In May, the group cut output by 9.7 million barrels per day (bpd) as a way of propping up the energy market. The ‘historic’ cut helped oil hit a three month high in June. Last week, it was announced the body would ease up on the production cuts to a reduction of 7.7 million bpd as of next month.

The original agreement stipulated that production would be increase in August, and last week that was confirmed. It is worth nothing that oil hasn’t fallen that much from the three month high that was registered in June. By Friday’s close, WTI and Brent crude are only down 2.4% and 1.9% respectively from the June highs.

At 7am (UK time) German PPI will be posted and economists are expecting it to rise from -2.2% in May to -1.6% in June.

EUR/USD – since late June it has been in an uptrend, and if the positive move continues, 1.1495 should be on the radar. If it moves through that level, it could target 1.1570. A break below the 1.1168 area might pave the way for 1.1060, the 200-day moving average, to be targeted.

GBP/USD – has been trading sideways in the past few sessions. A move higher might run into resistance at 1.2698, the 200-day moving average. A move through that level should put 1.2813 on the radar. Should it move lower, it might find support at 1.2418, the 100 day moving average.

EUR/GBP – should the bullish move from late April continue, it could target 0.9239. A break below the 50-day moving average at 0.8983, could put the 0.8800 zone on the radar.

USD/JPY – has been drifting lower for over one month and support could come into play at 106.00. A rebound might run into resistance at 108.37, the 200-day moving average.

FTSE 100 is expected to open 8 points lower at 6,282

DAX 30 is expected to open 5 points higher at 12,924

CAC 40 is expected to open 6 points lower at 5,063

For a look at all of today’s economic events, check out our economic calendar
By David Madden (Market Analyst at CMC Markets UK)

Mood Lifted on Vaccine Hopes, US-China Tensions Tick Up

There is a growing concern that certain parts of the world are going backwards in terms of reopening their economies. Hong Kong has reintroduced some restrictions, and the Australian state of Victoria has paused the reopening of its economy. In the US, Florida reclosed bars and restaurants. Philadelphia will ban large public events until February. European equity markets ended the day in the red. Some traders are concerned we have seen the high water mark as far as reopening the global economy is concerned.

In addition to the health concerns, markets also have to contend with rising tensions in regards to China. US Secretary of State, Mike Pompeo, said that China’s territorial claims in the South China Sea are ‘completely unlawful’. The Chinese government claimed the US are intentionally distorting the facts. Yesterday, the UK announced that it will ban Huawei from its 5G network.

The move won’t be immediate, but it will be required to be out of the equation by 2027. China’s international relations have been under strain recently since the introduction of the controversial national security law. It is not a huge surprise that the US and the UK are trying to apply some pressure to the Beijing administration in light of what is going on in relation to Hong Kong.

It is interesting that the Trump administration don’t want to take on China in terms of a trade spat. President Trump is content to keep phase one of the trade deal intact and pick smaller battles. The Donald is facing re-election in November so he probably won’t do anything too drastic between now and then.

Tensions between the US and China have risen again as President Trump signed legislation that will target individuals and companies that are helping the Chinese government tighten its grip on Hong Kong. Chinese government officials could be in the firing line. The US government will end its special status for Hong Kong, so that should apply pressure to the region in terms of tariffs. Stocks in China and Hong Kong are lower.

Moderna, a pharmaceutical company, announced that its potential Covid-19 vaccine delivered a robust immune response in an early stage human trial, and that has helped wider market sentiment. European indices are called higher.

Reporting season in the US kicked off yesterday as JPMorgan, Citigroup and Wells Fargo posted their latest figures. Collectively, the three banks set aside more than $27 billion for bad debt provisions. During the reporting season in April, the major banks set aside $25 billion for credit losses, and as far as this reporting season is concerned, we still have yet to hear from Goldman Sachs, Bank of America and Morgan Stanley. US stocks moved lower initially but the S&P 500 closed at the high of the day – it finished up 1.3%.

The latest UK GDP data showed the economy improved in May, but the rebound wasn’t as impressive as economists were expecting. On a monthly basis, the economy grew by 1.8%, and that was a big difference from the -20.5% registered in April, but the consensus estimate was for growth of 5.5%. The annual reading was even less impressive. The reading for May was -24%, and that was a tiny improvement on April’s -24.5%, and the forecast was -20.4%. The OBR issued a bleak outlook, as the body predicts the budget deficit will be 13-21% of GDP, and the yearly GDP forecast is -12.4%.

The UK CPI rate for June is tipped to fall to 0.4% from 0.5%, and the core reading is anticipated to hold steady at 1.2%. The reports will be posted at 7am (UK time).

The Italian CPI reading will be revealed at 9am (UK time) and economists are expecting it to fall from -0.3% to -0.4% in June.

The New York Fed manufacturing reading is tipped to be 10, and that would be a big improvement from the -0.2 that was posted in June. It is worth nothing the previous reading was the highest in four months. The update will be announced at 1.30pm (UK time).

At 2.15pm (UK time) the US industrial production report for June will be announced. The consensus estimate is 4.4%.

The Bank of Canada is expected to keep rates on hold at 0.25%, and the decision will be released at 3pm (UK time). The press conference will be held one hour later.

The EIA report will be posted at 3.30pm (UK time) and oil stockpiles are tipped to fall by 2.5 million barrels, while gasoline inventories are expected to rise by 1.3 million barrels.

The Beige Book will be announced at 7pm (UK time) and the update should provide us with a flavour of how the US economy is performing.

EUR/USD – since late June it has been in an uptrend, and a break above the 1.1400 zone might put 1.1495 on the radar. A break below the 1.1168 area might pave the way for 1.1051, the 200-day moving average, to be targeted.

GBP/USD – moved lower in the past two sessions and further declines could see it target 1.2427, the 100 day moving average. A move higher might run into resistance at 1.2693, the 200-day moving average. A move through that level should put 1.2813 on the radar.

EUR/GBP – Monday’s candle has the potential to be a bullish reversal, and if it moves higher it could target 0.9239. A break below the 50-day moving average at 0.8957, could put the 0.8800 zone on the radar.

USD/JPY – has been drifting lower for the last month and support could come into play at 106.00. A rebound might run into resistance at 108.37, the 200-day moving average.

FTSE 100 is expected to open 53 points higher at 6,232

DAX 30 is expected to open 150 points higher at 12,847

CAC 40 is expected to open 58 points higher at 5,065

For a look at all of today’s economic events, check out our economic calendar.

By David Madden (Market Analyst at CMC Markets UK)

Europe Set for Negative Start, US-China Tensions Rise, US Tech Giants Fell

Pfizer and BioNTech are working on four drugs that they are hoping will go on to be coronavirus vaccines, and the FDA put two of the four on a fast track for approval. At the back end of last week, BioNTech said they could receive approval as early as Christmas, but in light of yesterday’s news, it might even be sooner.

European equities closed higher and US stocks got off to a good start on the back of the news. The FDA update carried on nicely from Friday’s news that Remdesivir, the antiviral drug produced by Gilead Sciences, can reduce the fatality rate in coronavirus sufferers by 62%. In the past couple of trading sessions there was a feeling that big pharma stands a chance of taking on the virus.

That being said, many countries are still battling against Covid-19. There were in excess of 60,000 new cases yesterday in the US, while there were 312 deaths. The infection rate remains high, but at least the fatality rate is relatively low. The situation in Florida is getting worse as the growth in the number of new cases was 4.7%, while the seven day average was 4.4%.

Robert Kaplan, the head of the Federal Reserve Bank of Dallas, issued a mixed statement yesterday. The central banker expressed concerns in relation to the infection rate, and he said the Fed might be required to do more should assistance be needed. Mr Kaplan also said the Fed might row back on its stimulus packages should the economy improve.

The NASDAQ 100 set a fresh record high yesterday, a few hours into the trading session. The bullish run didn’t last long as the tech focused index finished down more than 2%, and the S&P 500 closed down nearly 1%. The usual suspects – Apple, Amazon, Netflix, Facebook and Google’s parent, Alphabet – all set all-time highs, but finished lower.

US earnings season will kick-off today as the latest quarterly numbers from JPMorgan, Wells Fargo and Citigroup will be posted. In April, the major banks collectively put aside more than $25 billion for provision for bad debts, the view is that the rate of loan defaults will surge on account of the pandemic.

Last month, the Fed carried out a stress test, and in one extreme scenario, the central bank cautioned that total bad debts provisions could be $700 billion. Dividends will be in focus as the Fed said that pay-outs must be capped at current rates, and there has been speculation that dividends could be cut in an effort to conserve cash.

It was a mixed day for commodities yesterday. The slide in the US dollar helped gold. Silver, copper and palladium were also helped by the move in the greenback, and the overall feel-good factor helped the industrial metals too. Oil on the other hand lost ground as there was talk that OPEC+ are looking to taper off the steep production cuts that were introduced in May. Last month WTI and Brent crude hit three month highs, but they failed to retest those levels since, because of the pausing of the reopening of economies.

Overnight, China posted its trade data for June. Imports were 2.7%, and economists were expecting -10%, keep in mind the May reading was -16.7%. Exports came in at 0.5%, and the consensus estimate was -1.5%, while the May reading was -3.3%. The rebound in imports and exports points to a turnaround in the global economy. It is possible the positive exports reading was largely because of Western government’s demand for personal protective equipment.

Rising tensions between the US and China in relation to Beijing’s territorial claims in the South China Sea has weighed on sentiment. Hong Kong is reintroducing tougher restrictions and a rise in coronavirus cases in Victoria, Australia, has impacted the mood too. Stocks in Asia are in the red, and European markets are called lower.

At 7am (UK time) the UK will release a number of economic reports. The GDP reading for May on an annual basis is tipped to be -20.4% and that would be an improvement on the -24.5% posted in April. The monthly reading is expected to be 5.5%, and keep in mind the April reading was -20.4%. UK industrial output, manufacturing output and construction output are expected to be 6%, 8% and 14.5% respectively.

At the same time, the final reading of German CPI for June will be posted and the consensus estimate is 0.8%.

The German ZEW economic sentiment report for July is tipped to be 60, and that would be a dip from the 63.4 recorded in June. It will be released at 10am (UK time).

Eurozone industrial production will be announced at 10am (UK time) and the May reading on a monthly basis is tipped to be 15%, and that would be a huge rebound from the -17.1% posted in April.

US headline CPI is expected to rebound to 0.6% from 0.1% in May. The core reading is tipped to be 1.1% and that would be a fall from the 1.2% that was posted in May.

EUR/USD – since late June it has been in an uptrend, and a break above the 1.1400 zone might put 1.1495 on the radar. A break below the 1.1168 area might pave the way for 1.1049, the 200-day moving average, to be targeted.

GBP/USD – has been in an uptrend recently, and should the positive move continue, it might target 1.2690, the 200-day moving average. A move through that level should put 1.2813 on the radar. Thursday’s candle has the potential to be a gravestone doji, and a move lower could see it target 1.2432, the 100 day moving average. A drop below 1.2251, might bring 1.2076 into play.

EUR/GBP – yesterday’s daily candle has the potential to be a bullish reversal, and if it moves higher it could see it target 0.9067 or 0.9239. A break below the 50-day moving average at 0.8949, could put the 0.8800 zone on the radar.

USD/JPY – has been drifting lower for the last month and support could come into play at 106.00. A rebound might run into resistance at 108.37, the 200-day moving average.

FTSE 100 is expected to open 78 points lower at 6,098

DAX 30 is expected to open 239 points lower at 12,560

CAC 40 is expected to open 91 points lower at 4,965

By David Madden (Market Analyst at CMC Markets UK) 

Traders in Risk-on Mode as Stocks and Metals Rise

The drug in question has been tipped as a potential treatment for the coronavirus for several months, and the findings from the latest study boosted market sentiment. BioNTech and Pfizer are working on a potential vaccine for Covid-19, and at the back end of last week, BioNTech announced that it is possible that its drug might receive approval from the FDA by December.

The pandemic will continue to dominate the headlines. On Sunday, the WHO said that another record was set for the number of daily cases. For the fourth day in a row, the US registered over 60,000 new cases. Countries like India and Mexico are seeing a rise in the number of new cases too.

Overnight, stock markets in Asia pushed higher despite the deteriorating health situation. This week US earnings season will kick-off and tomorrow big banks such as JPMorgan, Wells Fargo and Citigroup will reveal their numbers.

The latest jobs data from Canada showed that the economy is turning around. The unemployment rate fell from 13.7% in May to 12.3% in June, which was encouraging to see, but it is worth noting that economists were expecting a reading of 12%. The employment change reading showed that 952,900 jobs were added last month, and that comfortably topped the 700,000 consensus estimate. The May update showed that nearly 290,000 jobs were created, so last month’s report was a big improvement.

The finer details of the update showed that 488,100 full-time jobs were added, while 464,800 part-time jobs were created. Average wages fell to 6.8% from 9.96%, and that was likely down to the return of lower-income earners back to the jobs market. Typically, a decrease in earnings would be seen as negative as workers who earn less typically spend less, but in these circumstances, it could be seen as positive as it is a sign that more people are going back to work.

Demand at the factory level in the US continues to be weak as the headline PPI remained at -0.8% in June, while economists were expecting it to rebound to -0.2%. The core reading, which strips out commodity prices, fell to 0.1% from 0.3%. The core report is considered to be a better reflection of underlying demand. PPI is often a front-runner for CPI, because if demand at the factory level is falling, it will probably fall at the consumer level too. The headline CPI rate is currently 0.1%, and in the months ahead it is likely to remain under pressure.

The US dollar index fell on Friday as traders turned their backs on the currency as they were in risk-on mode. In the past few months, the greenback has acted as a flight-to-quality play, and it typically slides when dealers are keen to take on more risk.

Metals performed well last week. Gold hit a level last seen in September 2011, silver hit a 10-month high, and copper reached a level last seen in April 2019. The weaker greenback was a factor in the positive run in the metals market. Copper is often seen as a good proxy for demand, so its rally suggests the traders are banking on a continuation in the rebound of the global economy.

Oil gained ground on Friday as the overall sense of optimism boosted the energy market. The Baker Hughes report showed the number of active oil rigs in the US fell by four to 181, its lowest since 2009. The rig count is falling but it is falling at a slower pace. The number of active gasoline rigs in the US fell by one to 75, matching its lowest level on record. One report over the weekend claimed that Saudi Arabia are keen to raise production and retreat from the record production cuts that were announced in April.

Andrew Bailey, the governor of the Bank of England, will take part in a webinar at 4.30pm (UK time).

EUR/USD

Since early May it has been in an uptrend, but it has been trading sideways recently. If it holds above the 1.1168 zone, it could target 1.1495. A break below the 1.1168 area might pave the way for 1.1049, the 200-day moving average, to be targeted.

GBP/USD

Since late June it has been in an uptrend, and should the positive move continue, it might target 1.2690, the 200-day moving average. A move through that level should put 1.2813 on the radar. Thursday’s candle has the potential to be a gravestone doji, and a move lower could see it target 1.2436, the 100 day moving average. A drop below 1.2251, might bring 1.2076 into play.

EUR/GBP

Last Tuesday’s daily candle was a bearish reversal, and if it moves lower it might find support at 0.8881, the 100-day moving average. A retaking of 0.9067 could see it target 0.9239.

USD/JPY

The USD/JPY been drifting lower for the last month and support could come into play at 106.00. A rebound might run into resistance at 108.37, the 200-day moving average.

FTSE 100 is expected to open 55 points higher at 6,150

DAX 30 is expected to open 151 points higher at 12,784

CAC 40 is expected to open 55 points higher at 5,025

By David Madden (Market Analyst at CMC Markets UK)   

Europe Set to Rebound, US Jobs Data on Radar

Traders in this part of the world continue to monitor the situation in the US, where the majority of states continue to see the number of new Covid-19 cases increase. As of yesterday, the number of confirmed cases in the US exceeded 3 million. On Tuesday, the WHO cautioned there could be an increase in the fatality rate as there has been a rise in infections, but the death rate so far has lagged.

US-China tensions were doing the rounds yesterday. The decision by the Chinese government to introduce the national security law in regards to Hong Kong has sparked criticism from many countries around the world as it chips away at the principal of ‘one country two systems’.

Yesterday there was speculation the US government would hit back at Beijing by potentially undermining the Hong Kong Dollar (HKD) peg. It wasn’t that long ago that President Trump reiterated that the US-China trade deal was intact, so going after the HKD might be a useful tactic. The US leader might be hesitant about taking a very tough stance against the Beijing administration given that he’s not doing well in the polls and the Presidential election is in November.

The mini-budget from Rishi Sunak, the UK’s Chancellor of the Exchequer, made big political headlines yesterday, but it didn’t have a significant impact on the markets. Mr Sunak revealed £30 billion worth of schemes that are aimed at providing assistance to the UK economy. The furlough scheme will come to an end in October and £9 billion will be allocated to job retention. There will be a temporary cut to VAT for the tourism and hospitality sector.

In addition to that, there have been incentives offered for dining out too – the combined stimulus is worth £4.5 billion. Providing help to the battered hospitality sector is a sensible move, but people in the UK might be cautious about socialising given what has happened in places like Melbourne and the US in relation to a rise in new cases. As expected, the stamp duty threshold was upped to £500,000 from £125,000. One could argue that this tactic might not be as fruitful as the government are hoping as some people are likely to be cautious about purchasing a property on account of the huge economic uncertainty.

The health crisis in the US remained in focus. Oklahoma, California and Tennessee all posted a record daily rise in the number of new cases. States like Florida and Arizona continue to see higher case numbers too. Despite the pandemic, US equity benchmarks closed higher as the tech sector continued its bullish run. Amazon, Apple and Netflix all set new record highs. Raphael Bostic, the head of the Federal Reserve of Atlanta, said that some of the fiscal support programmes might need to be extended.

Overnight, China posted its CPI data for June and the level was 2.5%, while economists were expecting 2.5%. Keep in mind the May reading was 2.4%. The PPI metric was -3%, and the consensus estimate was -3.2%, while the previous update was -3.7%. The improvement in the PPI rate might bring about higher CPI in the months ahead. Stocks in Asia are up on the session, and European markets are being called higher too.

The US dollar came under pressure yesterday. It was a quiet day in terms of economic data so the move wasn’t influenced by economic indicators. Lately the greenback has been a popular safe haven for traders, it was showing losses during the day when European indices were in the red, and when US stocks were flickering between positive and negative territory.

Gold was given a hand by the slide in the US dollar. The metal topped $1,800, and it was the first time since September 2011 that it traded above that mark. The commodity is still popular with certain traders as there are concerns that a second wave of Covid-19 could be on the cards. The metal’s positive move is being partly fuelled by the belief that central banks will maintain very loose monetary policy. Some people are afraid an inflation rise is in the pipeline, so that is influencing gold too.

At 7am (UK time) Germany will post its trade data for May, and the imports and exports are tipped to be 12% and 13.8% respectively.

The US initial jobless claims is anticipated to fall from 1.42 million to 1.37 million. The metric has fallen for the past 13 weeks in a row. The continuing claims reading is tipped to drop from 19.29 million to 18.95 million. Keep in mind that last week’s reading actually ticked up. The reports will be posted at 1.30pm (UK time).

A eurogroup video conference meeting will be held today and traders will be listening out for any potential progress being made in relation to the region’s recovery fund.

EUR/USD – since early May it has been in an uptrend, but it has been trading sideways recently. If it holds above the 1.1168 zone, it could target 1.1495. A break below the 1.1168 area might pave the way for 1.1042, the 200 day moving average, to be targeted.

GBP/USD – since late June it has been in an uptrend, and should the positive move continue, it might target 1.2687, the 200-day moving average. A move through that level should put 1.2812 on the radar. A drop below 1.2251, might bring 1.2076 into play.

EUR/GBP – Tuesday’s daily candle has the potential to be a bearish reversal, and if it moves lower it might find support at 0.8935, the 50-day moving average. A retaking of 0.9067 could see it target 0.9239.

USD/JPY – has been drifting lower for the last month and support could come into play at 106.00. A rebound might run into resistance at 108.37, the 200-day moving average.

FTSE 100 is expected to open 34 points higher at 6,190

DAX 30 is expected to open 153 points higher at 12,647

CAC 40 is expected to open 46 points higher at 5,027

For a look at all of today’s economic events, check out our economic calendar.

By David Madden (Market Analyst at CMC Markets UK)

Health Woes Linger, Rishi Sunak in Focus

The bullish move that was seen at the start of the week was triggered by an editorial in the China Securities Journal. The article talked about the possibility of a bullish run in Chinese equities, and in turn there was a surge in domestic stocks, and that paved the way for the upward move in world stock markets on Monday.

One could argue the rally was essentially manufactured by the article in question, hence why the feel good factor didn’t last too long. By the close of play yesterday, the FTSE 100, DAX 30 and the CAC 40 had handed back nearly all the gains that were made on Monday. Yesterday’s move was more about a correction rather than a sharp change in outlook.

US indices got off to a less volatile start yesterday. The tech sector continued to be popular and it helped the S&P 500 turn positive in early trading. Stocks such as Apple, Facebook, Amazon and Netflix all posted record highs, and in turn the NASDAQ 100 set a new all-time high. The bullish move ran out of steam and the S&P 500 and the NASDAQ 100 closed down 1.08% and 0.75% respectively. Raphael Bostic, the head of the Atlanta Federal Reserve Bank cautioned the rebound in the US economy might be levelling off.

Equity markets in Asia are mixed as stocks in China and Hong Kong are showing modest gains, while the Nikkei 225 is in the red. The WHO said it wouldn’t be surprised if the death rate started to rise as Covid-19 cases increased in June.

Rishi Sunak, the Chancellor of the Exchequer, will be in focus today as his is tipped to unveil various schemes that are aimed at aiding the economy. Some of the programmes have already been announced. Last week, Prime Minister Johnson, revealed a £5 billion infrastructure plan.

There is talk about more funds being allocated to schools too. It is believed that £3 billion will be earmarked for a green investment package – which will include energy efficiency schemes and the creation of jobs. The house building sector could be in for a boost as there is talk the stamp duty threshold will be raised from £125,000 to £500,000. Changes might be introduced to the furlough scheme and VAT might be alerted too.

The European Commission (EC) downgraded its outlook for the EU and the eurozone. The group revised its forecasts because its felt European countries reopened their economies at a slower rate than initially predicted. The EC is now forecasting the EU and the currency area will contract by 8.3% and 8.7% respectively in 2020, while the previous forecasts were -7.4% and -7.7%.

The scale of the revision isn’t huge, but a negative revision is important from a psychological point of view. The news from the EC echoed that of the IMF, who in June predicted the global economy would shrink by 4.9% this year, while their previous prediction was -3%. The IMF are very bearish on the eurozone as they feel it will contract by 10.2% in 2020.

The CMC GBP index rallied yesterday as the UK’s and the EU’s chief negotiators had dinner at Downing Street. Britain’s David Frost entertained Michel Barnier and no doubt the conversation included topics such as trade and fishing rights. Sterling pushed higher during the day as dealers took the view that some progress should be made. The UK and the EU have both expressed a desire to strike a deal, but differences remain.

At 3.30pm (UK time) the EIA report will be posted and US oil stockpiles are tipped to fall by 3.2 million barrels, while gasoline inventories are anticipated to remain unchanged.

EUR/USD – since early May it has been in an uptrend, but it has been trading sideways recently. If it holds above the 1.1168 zone, it could target 1.1495. A break below the 1.1168 area might pave the way for 1.1042, the 200 day moving average, to be targeted.

GBP/USD – since late June it has been in an uptrend, and should the positive move continue, it might target 1.2686, the 200-day moving average. A move through that level should put 1.2812 on the radar. A drop below 1.2251, might bring 1.2076 into play.

EUR/GBP – yesterday’s daily candle has the potential to be a bearish reversal, and if it moves lower it might find support at 0.8930, the 50-day moving average. A retaking of 0.9067 could see it target 0.9239.

USD/JPY – has been drifting lower for the last month and support could come into play at 106.00. A rebound might run into resistance at 108.38, the 200-day moving average.

FTSE 100 is expected to open 34 points lower at 6,155

DAX 30 is expected to open 46 points lower at 12,570

CAC 40 is expected to open 25 points lower at 5,018

For a look at all of today’s economic events, check out our economic calendar.

By David Madden (Market Analyst at CMC Markets UK)

Rally in Asia Bodes Well for Europe

The 4 July holiday in the US fell on a Saturday this year, so it was a public holiday on Friday and the US market was closed.

Volatility was low in the first hours of the European trading session, and trading volumes were down sharply when compared with the rest of the week. Health woes chipped away at market sentiment on this side of the Atlantic. On Friday, it was revealed that US states such as Arizona and California saw a jump in the number of new cases. It is likely that traders in Europe took the view the health situation in the US would deteriorate as Americans enjoyed their long weekend.

According to the WHO, on 4 July over 212,000 new Covid-19 cases were registered – a daily record. The US, Brazil and India were the largest contributors to the tally. The US’s reading on Saturday was over 53,000, which was a retreat from Friday’s level of more than 57,000. Some hard hit US states such as Florida are experiencing a drop-off in the rate of new cases, which is probably down to a pausing of the reopening of its economy. As of yesterday, 34 states saw an increase in new cases on the week.

Stocks in mainland China and Hong Kong are showing impressive gains. There has been a jump in trading volumes in China, and European equity benchmarks are tipped to open higher as a result.

The latest services data from China and Europe point to a continuation in the rebound in activity. The Caixin survey of Chinese services for June was 58.4, its highest in ten years. Keep in mind the February reading was 26.5, so there has been a colossal turnaround. The services PMI reports for Spain, Italy, France, Germany and the UK were 50.2, 46.4, 50.7, 47.3, and 47.1 respectively.

The Spanish and French updates showed positive growth, and all the readings were major improvements on the May levels – which were in the high 20s or low 30s. It is clear that things are improving from an economic point of view, but the health situation could be a different story. There have been local lockdowns in Leicester, Melbourne, and in parts of Spain too. There are concerns that this sort of thing could become common.

Christine Lagarde, the European Central Bank president, warned that prices in the currency bloc might remain under pressure for the next two years, before seeing a turnaround. The central banker took part in a webinar on Saturday, and predicted that digitalisation will speed up, and that companies will cut their supply chains too.

It was reported the Bank of England chief, Andrew Bailey, wrote to UK banks and said that negative interest rates are an option the group is considering. Such a move would put pressure on lending margins, which are already squeezed. Interest rates are at historic lows, but consumers are actually paying down credit card debt, so would negative rates actually spark higher demand?

Over the weekend, pubs and restaurants in England were allowed to reopen. The event was referred to as ‘Super Saturday’ and it was a continuation of life returning to normal. The UK economy has come a long way in the past few months, and with more businesses reopening the economic rebound should continue, but there are concerns the infection rate could jump. Images of packed streets in places like London’s Soho will probably add weight to the argument that the capital could be in for a rise in Covid-19 cases.

German factory orders will be posted at 7am (UK time) and the May reading is expected to be 15%, and that would be massive rebound from the -25.8% registered in April.

The UK construction PMI report for June is expected to be 47, up from 28.9 in May. It will be announced at 9.30am (UK time).

At 10am (UK time), eurozone retail sales will be released and the consensus estimate is 15%. Keep in mind the May reading was -11.7%.

The final reading of US services PMI for June is expected to be 47, and that would be a slight improvement from the flash report’s 46.6. The report will be published at 2.45pm (UK time). Shortly afterwards, the ISM non-manufacturing report will be announced, and economists are predicting 50, which would be an improvement on the 45.4 registered in May.

EUR/USD

Since early May the EUR/USD has been in an uptrend, but it has been trading sideways recently. If it holds above the 1.1168 zone, it could target 1.1495. A break below the 1.1168 area might pave the way for 1.1038, the 200 day moving average, to be targeted.

GBP/USD

For more than three weeks the GBP/USD has been in a downtrend and if the bearish move continues, it might hit 1.2163. A move higher from here might see it target 1.2683, the 200-day moving average.

EUR/GBP

Has been in an uptrend for over two months and if it holds above 0.9000, it might target 0.9239. A move lower might find support at 0.8924, the 50-day moving average.

USD/JPY

Has been drifting lower for the last month and support could come into play at 106.00. A rebound might run into resistance at 108.38, the 200-day moving average.

FTSE 100 is expected to open 73 points higher at 6,230

DAX 30 is expected to open 244 points higher at 12,772

CAC 40 is expected to open 90 points higher at 5,097

For a look at all of today’s economic events, check out our economic calendar.

By David Madden (Market Analyst at CMC Markets UK)

Europe set for a positive start, as Q2 draws to a close   

The rebound that we’ve seen in Q2 is still quite remarkable when looked through the prism of where we were at the end of March, when all of the government lockdowns were only just beginning. The FTSE100 while also looking to finish higher for the third month in a row, has been the serial underperformer of the bunch, lagging well behind, when compared to the steep falls seen in Q1.

US markets have also seen a similarly remarkable rebound, particularly when you look at the economic landscape now, and where we were heading into the crisis, although the S&P500 hasn’t really moved much from where we finished at the end of May.

Last night’s rebound in US markets, came about despite a warning from the WHO that the epidemic was running out of control and a continued rise in infection rates across a number of US states. There was also some concerns about second waves in China and South Korea, however these infection spikes came from a fairly low base.

The recovery in sentiment was also helped by a 44.3% rise in pending home sales in May, however the wider story would appear to be that investors may be making the calculation that politicians won’t stop the ongoing moves to reopen economies around the world, despite rising infection rates, banking on perhaps, that it is the least worst option.

It is this calculation that appears to be driving risk appetite, along with the fact that while the infection rate is rising the fatality rate is not, and it is that, more than anything, is probably the most important statistic. The reality is that Covid-19 is here for the foreseeable future and while an increase in infections is not particularly desirable, as long as it doesn’t translate into a higher fatality rate then the worst that can happen is likely to be localised lockdowns.

This appears to be playing out here in the UK with the city of Leicester set to be excluded from the grand re-opening on the 4th July, with non-essential shops to close from today, over concerns about a big rise in infection rates there. Chancellor Rishi Sunak will then follow that up with a budget statement next week.

Prime Minister Boris Johnson will also be making a speech later today,

Where he will outline a £5bn accelerated infrastructure spending plan, with a more detailed “new deal” plan to be published in the autumn.

As we look towards today’s European open, we look set to take our cues from last night’s positive US finish, even if the sentiment took a brief knock after the US Commerce Secretary Wilbur Ross announced that Hong Kong’s special trading status was set to be revoked, thus putting the territory on the same setting as China, in terms of being subject to all of the same tariffs and trade restrictions. This action was a pre-emptive response to this morning’s passing of the new China security law, which the US says poses risks to US sensitive technology.

This appears to have been widely expected with Asia markets finishing the month higher on the back of this morning’s latest China manufacturing and non-manufacturing PMI’s for June which showed another fairly decent month of economic activity, following on from decent readings in May.

The manufacturing number came in at 50.9, while non-manufacturing showed an expansion of 54.4, both above the readings from May.

We’ll also be getting the final Q1 GDP numbers for the UK economy, which aren’t expected to change much from the previous readings, and could even be adjusted slightly lower.

These numbers are unlikely to tell us anything new about the UK economy’s performance at the beginning of the year. The economy was slowing even before the March lockdown, largely due to widespread flooding in February, which not only hit consumer spending, but also the wider economy in general.

On a quarterly basis, the economy is expected to contract by -2%, and on an annual basis by -1.6%. The lockdowns that started across Europe in March are expected to result in big declines in both imports and exports, which are expected to see even bigger falls than the previous readings, with falls of -12.2% and -9.4% respectively.

Concerns about deflation in the euro area are likely to take centre stage later this morning with the latest flash estimate of CPI for June. This is expected to come in at 0.2%, with core prices set to slow further to 0.8%, down from 0.9% in May.

EURUSD

Found support at the 1.1160/70 area last week, before rebounding back towards the 1.1350 area. Rebound continue to look shallow with a break below 1.1160 potentially opening up a return to the 1.1020 area and the 50, and 200-day MA’s.  Above the 1.1350 area retargets the highs from June at 1.1425.

GBPUSD

Continues to drift lower with the next support at 1.2215, with a break below here targeting a move back to the May lows at 1.2075.  We need to see recovery back above the 1.2450 level to stabilise and open up the 1.2540 level and last week’s high.

EURGBP

While above the 0.9000 area the bias remains for a move back to the 0.9240 area, if we hold above 0.9020. Trend line support from the lows this year comes in at the 0.8950 area.

USDJPY

Currently below the 108.00 area, however a break higher has the potential to see a move towards the 108.70 area. While below 108.00 the risk is for a move back towards the 107.20 area.

FTSE100

Is expected to open 20 points higher at 6,245

DAX

Is expected to open 68 points higher at 12,300

CAC40

Is expected to open 25 points higher at 4,970

For a look at all of today’s economic events, check out our economic calendar.

By Michael Hewson (Chief Market Analyst at CMC Markets UK)

Virus Resurgence Concerns, Set to Keep Markets on the Defensive

Rising infection rates in the US, which saw some US states either postpone their reopening’s or close back down again, saw equity markets slide lower on the week on Friday, over concerns that any economic recovery may well take longer to take hold. In spite of these concerns the losses that we saw turned out to be fairly modest when compared to previous sessions, as well as previous weeks.

There is no question that some investors are calling into question the pace of any recovery in economic output, with gold prices hitting their highest levels since October 2012, however the reality remains that while there is concern about the economic impact of a second lockdown, the bar to another countrywide one being implemented remains very high indeed.

The damage already done in other parts of the health care sector has likely put paid to that idea, which means investors, like everyone else will have to get used to the fact that Covid-19 is here to stay, and we will all have to learn to live with it, along with the related impact on our day to day lives.

As we start a new week, as well as coming to the end of the month and Q2, these concerns about a much more prolonged recovery, as infection rates continue to rise in a number of US states, are likely to be more of a drag on US stocks in the short term, though they are also set to act as a drag elsewhere as well.

These concerns look likely to overshadow some of the more positive sentiment elsewhere, as economic data continues to show further signs of improving in places like Asia and Europe, where second wave concerns aren’t anywhere near as immediate for now, though new localised outbreaks in China and South Korea over the weekend, continue to act as reminders that the virus remains far from defeated.

Crude oil prices also slipped back a touch last week, and have continued to weaken after hitting their highest levels since 6th March last week, retracing 50% of the decline from this year’s peaks to the April lows in the process. A large part of the reason for the pause has been concern about the rise in cases in the US, as well lower demand as US driving season gets under way in earnest.

Last week the IMF became the latest global organisation to downgrade its forecasts for the global economy, joining the likes of the OECD and World Bank in painting a pessimistic outlook for any recovery this year. It was notable that the fund was more optimistic than the likes of the OECD and Word Bank on a global basis with a -4.9% prediction, while its regional outlook was also more varied.

For example, the IMF predicted an -8% contraction in the US, a much more pessimistic assessment than the OECD’s -7.3% contraction estimate, with the IMF much more optimistic about China, than the OECD. The fact is a lot of these assessments are guesswork, reliant on a whole host of unknowns including the prospect of a second wave in the autumn, as the weather gets colder and populations are forced back indoors.

Markets in Asia have taken their cues from Fridays sharp fall in the US, the continued rise in infection rates over the weekend, and the rise in global deaths to over 500k by trading lower, and this weakness is set to manifest itself into a similarly weaker open here in Europe this morning.

This week we’ll get another insight into how well the restarting of economic activity is going across Asia, Europe and the US, with the latest insight into economic activity in June, as lockdown measures continue to get eased, and governments try to restore a semblance of normality to everyday life.

Tomorrow the UK government is set to layout its own plans for an investment bonanza with extra money for infrastructure, schools and hospitals, against a backdrop of the worst economic outlook since the second world war.  The details are expected to be laid out by PM Johnson in an announcement sometime tomorrow.

The further easing of flight and travel restrictions and quarantine measures across Europe in the coming days, could well help give another lift to the travel sector, while reports from TUI and Hays Travel over the weekend of a surge in bookings, is encouraging that something could be salvaged from what’s left of the remaining 2020 summer holiday season, not only here in the UK, but also in Europe as well.

EURUSD – found support at the 1.1160/70 area last week, before rebounding back towards the 1.1350 area. Currently appears to be struggling to maintain the momentum from the lows in May, with a break below 1.1160 potentially opening up a return to the 1.1020 area and the 50, and 200-day MA’s.  Above the 1.1350 area retargets the highs from June at 1.1425.

GBPUSD – last week’s rebound to the 1.2540 area quickly ran out of steam keeping the prospect of a move towards the May lows at 1.2075 a realistic possibility. A move below the1.2300 level could well be the beginning of such a scenario with 1.2240 the next key support.

EURGBP – while above the 0.9000 area the bias remains for a move back to the 0.9240 area, if we Trend line support from the lows this year comes in at the 0.8950 area.

USDJPY – last week’s low at 106.00 has seen the US dollar rebound towards the 107.50 area. We need to see a move back through here and the 50-day MA to argue for a move towards the 108.00 initially and then potentially the 108.70 area.

FTSE100 is expected to open 37 points lower at 6,122

DAX is expected to open 89 points lower at 12,000

CAC40 is expected to open 34 points lower at 4,875

For a look at all of today’s economic events, check out our economic calendar.

By Michael Hewson (Chief Market Analyst at CMC Markets UK)

Dollar Sulks Ahead of FOMC Meeting

The mighty Dollar is weakening against every single G10 currency ahead of the Federal Reserve’s monetary policy announcement.

Dollar Index (DXY), which tracks the value of the greenback against major has tumbled to levels not seen three months below 96.30. With prices trading below the 20 Simple Moving Average and the Moving Average Convergence Divergence crossing to the downside, the DXY remains in a downtrend on the daily charts. The technicals are bearish and a solid daily close below 96.25 may inspire a decline towards 95.00. Should 96.25 prove to be reliable support, prices may rebound back towards 97.15 and 97.80.

Euro takes advantage as Dollar softens

Earlier in the week, we discussed the possibility of Euro bulls running on empty and running on fumes.

Economic data from Europe, especially Germany continues to paint a gloomy picture while questions linger over the effectiveness of monetary and fiscal tools against the coronavirus menace. Over the past few days, a vulnerable Dollar has offered the Euro support, but for how long?

Focusing on the technical picture, the EURUSD remains bullish on the daily charts thanks to Dollar weakness. The currency pair is trading above the 20 Simple Moving Average while the MACD trades to the upside. A solid breakout above 1.1360 may open a clean path towards 1.1450. Should 1.1280 prove to be unreliable support, the EURUSD may sink back towards 1.1200 and 1.1150 respectively.

USDJPY greedily eyes 107.00

The bearish setup we discussed on the USDJPY yesterday materialized with prices trading towards the 107.00 level.

It is becoming clear that the Japanese Yen remains in bid despite the “risk-on” sentiment with global growth fears and trade tensions stimulating appetite for safe-haven assets. A weakening Dollar is also playing a role in the USDJPY’s descent. The downside is building momentum with a breakdown below 107.00 opening a path towards 105.90.

USDCAD sinks deeper into the abyss

This currency pair is under intense pressure on the daily charts. There have been consistently lower lows and lower highs while the MACD trades to the downside. Sustained weakness below 1.3500 may encourage a decline towards 1.3300.

EURGBP breakout in play

A picture is worth a thousand words.

The EURGBP is slowly approaching the 0.8850 support level. A breakdown below this point may invite a decline towards 0.8700 which is 150 pips away. If 0.8850 proves to be reliable support, prices may rebound back towards 0.9000.

Commodity spotlight – Gold

Where Gold concludes this week will be heavily influenced by the Federal Reserve meeting and Dollar’s valuation.

Intraday bulls may have a chance to push the metal higher if an hourly close above $1720 is achieved today. A breakout above this point could inspire a move towards $1747.

If $1720 proves too much for buyers to handle, prices retrace back to $1670.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Euro Tests Crucial Resistances. EUR/USD, EUR/GBP and DAX Analysis

After Monday’s all mighty upswing, Tuesday brought us a bearish correction. So far, the size of this correction is very small and it seems that buyers are still in control of the situation. Today, we don’t have any major events in the macro calendar, so we expect that optimism will not go away and global indices will remain bullish.

We can see two inverse head and shoulders pattern on the DAX. The first one gave us the buy signal on Monday and the second one is being created as we speak. The bottom of the head is on the 23,6% Fibonacci level and the neckline is on the 11100 level. A breakout of the neckline will significantly increase the chances for another bullish wave.

Next, we have two setups with the EUR. Yesterday, the price of the EURUSD bounced from the upper line of the triangle but that wasn’t the only attempt to break this resistance. Buyers are trying again today but so far; the result is pretty much the same. Technically, the price is creating a head and shoulders pattern. Currently right shoulder is being created but the results should be out soon. A breakout of the red neckline will give us a signal to sell and a breakout of the upper blue line will deny the H&S pattern and bring us a mid-term buy signal.

The second setup is the EURGBP, which has recently been moving with grace, respecting the most popular price action principles. After a triangle and a pennant, we currently have a rectangle, which is a trend continuation pattern. Most recently, the price bounced from the lower line of the rectangle and the mid-term up trendline. A further breakout to the upside looks imminent.

Sellers Got Caught in a Trap. S&P 500, DAX and EUR/GBP Analysis.

It looks like the bulls did this again. Last week, the bears managed to create good-looking sell signals on major indices. After a few attempts and a lot of fearmongering, they finally did this. Unfortunately for them, it looks like the outcome will be the same as with the previous negative setups: denial and a bullish counter attack.

We will start with the SP500, where it looks like instead of the head and shoulders pattern, we will get an inverted version of it accompanied by the bullish flag. The price already broke the neckline of this formation and is currently aiming to the upper line of the flag. Odds for the price getting there are quite high.

The DAX, looks even better! Here, we also have an inverse head and shoulders formation but in addition the price returned to above the neckline of the bigger H&S pattern, that’s what gave us last week’s false sell signal. Furthermore, the price broke the mid-term down trendline, connecting lower highs since last Monday. With all that, this week’s sentiment looks optimistic.

We will finish with the EURGBP, which brought us the end of a mid-term sideways trend and the birth of a new uptrend last week. Optimism here is coming from the fact that the price broke the upper line of range trading and used it as a support. Furthermore, after the breakout, the price created a small pennant, which also resulted with a movement to the upside. In my opinion, the movement towards the 0.9 level is extremely probable. Most probably before the price hits that resistance, some kind of a bearish correction will happen due to the fact that the price seems a little bit overbought. Nevertheless, the main sentiment here is positive.

Euro Struggles Against the British Pound Near 1-Month Lows

In an interview with Spanish newspaper La Vanguardia, European Central Bank (ECB) Vice President Luis de Guindos said that the European economy will suffer a more severe recession than the global economy. He added that it’s possible to see some signs of growth starting in the third quarter of 2020 but a genuine recovery in economic activity is not possible before 2021.

The ECB announced a massive economic stimulus plan to support the economy amid the COVID-19 pandemic. Guindos also said that the additional government spending to counter the economic impact of the virus could be as high as 1.5 trillion Euro. European Finance Ministers have also agreed on a joint package of 540 billion Euro.

Eurozone has been hit hard by the pandemic. Nationwide lockdowns across major economies like Germany, Spain, France, and Italy have tremendously increased the risk of recession and high unemployment. According to the International Monetary Fund, Spain’s unemployment rate could reach 20.8% this year.

In the UK, Government announced to extend its overdraft facility at the Bank of England to support struggling businesses and furloughed workers. The facility was last used during the 2008 financial crisis. Euro investors are keeping a close eye on the economic impacts in the Eurozone area as well as the UK. EURGBP struggled near the 0.87000 level after a failed recovery attempt above 0.87500. The currency pair is currently trading near its one-month low.

EURGBP

On the technical side, EURGBP on the 4-Hour timeframe has been following a downtrend since April 7. The pair registered the lowest level of the period under study at 0.86810 on April 14. As of writing, the EURGBP is hovering around 0.87150 with negative Moving Average Convergence Divergence and Momentum below the 100 level.

The pair is currently trading below the 50-period simple moving average with Relative Strength Index below 50 which supports the recent bearish price move. Resistance level lies at 0.88643 while the support level lies at 0.86810. Bears are trying to drag the price below the 0.86000 level, but a push above 0.88000 could strengthen the argument for a bullish move.

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Written on 16/04/2020 by Bilal Jafar, FX Trainer at FXTM

Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.


 

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