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Equities edge up, sterling still in focus

US equity markets fared better than their European counterparts as the major indices finished higher on the session, while the FTSE 100 eked out a small gain, while the DAX and CAC 40 closed slightly lower.

The trade tensions between the US and China still dominate the headlines. President Trump is confident he is doing the right course of action as the Chinse stock market has suffered so much in recent months, it is no longer the second-largest in the world. Washington DC and Beijing have been upping the ante recently, and it seems that neither side wants to back down, so the story is likely to hang over the markets.

Sterling has gone from bad to worse in the past few days. The Bank of England (BoE) had a dovish hike on Thursday, Mark Carney, the BoE governor, talked down the pound down on Friday as he warned about the possibility of a ‘no-deal’ Brexit. Sterling sold-off heavily yesterday after Secretary of international trade Liam Fox announced there is a 60-40 likelihood of the UK leaving the EU without a trade deal. Traders are terrified about the possibility of a ‘no-deal’ Brexit. The more we hear the phrase ‘no-deal Brexit’, the more likely the pound will be kept under the cosh. The British side might give off the impression off they would be content without a deal in order to force Brussel’s hand, and the pound could be in for a rocky ride in the near-term.

The euro took a knock after Germany posted terrible factory order numbers. The June report showed a 4% fall, which completely undershot the 0.4% fall that economists were expecting. It was the weakest reading since early 2017. The dismal update could be as a result of strained trading relations between the EU and the US .It is worth remembering that in recent weeks, Brussels and the Trump administration agreed to work together to remove tariffs, so the future figures may not be as gloomy.   

This morning at 7am (UK time), Germany will release the latest industrial output numbers and the consensus estimate is -0.5%, and that compares with a 2.6% rise in May. At the same time, Germany will release the latest trade figures, and economists are expecting a surplus of €20.1 billion, and that would be a slight decline on the May budget surplus of €20.3 billion. The trade report should be interesting given the negations between the EU and the US over trade.

EUR/USD – remains below the trend line from the June high, and while it remains below the 1.1720 area its outlook could remain negative. A break below the 1.1510 area, might bring about further losses. A move back above 1.1720, could bring 1.1850 into play. 

GBP/USD – has been in a downtrend since April, and if the bearish move continues it could target 1.2900. Pullbacks might run into resistance at 1.3219 – 50-day moving average, or 1.3363.      

EUR/GBP – has been pushing higher since April and if the bullish run continues it could target 0.8970. A move lower might find support at 0.8844 or at 0.8818 – 200-day moving average.

USD/JPY – the upward trend that began in March is still intact, and if the positive move continues it might target 113.18. Support might be found at 110.71 – 50-day moving average, or at 110.04 – the 200-day moving average.

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