US equity markets closed higher last night and they managed to break the recent losing streak.
The heightened tensions between the US and Turkey will have far worse consequences for Turkey than for the US. European stocks suffered yesterday as traders are still nervous that the slump in the Turkish lira will have negative ramifications for banks in the region. Turkey’s president Erdogan is showing no indication of backing down, and it appears he is keen to endure the ‘economic war’ with the US, and this is likely to hang over stocks.
Sterling will be in play this morning as the UK will release the latest inflation figures. The headline rate is expected to increase to 2.5% from 2.4% on an annual basis, while economists are expecting 0% on a monthly basis, and that would be no change on the month. The yearly core CPI report is tipped to hold steady at 1.9%. The core update is a better gauge of actual demand, and given sterling’s weakness recently, a firm report could entice buyers.
The UK released broadly positive numbers yesterday. The unemployment rate fell from 4.2% to 4% - it’s lowest since early 1975. Average earnings excluding bonuses rose by 2.7%, meeting expectations, and the May report was revised higher to 2.8% from 2.7%. The report failed to encourage much buying of the pound even though it lost a lot of ground recently.
The eurozone economy grew by 2.2% in the second-quarter on a yearly basis, and that was an improvement on the 2.1% growth in the same period the previous year. The currency bloc has come on leaps and bounds since the 2012-2014 era, but growth has cooled through 2018.
German inflation remained at 2% in July, meeting expectations. Traders will be keeping this in mind when the eurozone releases the inflation report for the region on Friday.
The European Central Bank (ECB) will wind down its bond buying scheme this year, but won’t be hiking interest rates until at least the back-end of 2019. Mario Draghi, the ECB Chief, will only tighten interest rates when the region can handle it, and the latest crisis in Turkey could be a setback for the region.
At 1.30pm (UK time) the US will announce the retail sales report for July, and the consensus estimate is 0.1%, and that compares with 0.5% in June. Broadly speaking, the US economy has been performing well lately, and there has increased talk of an interest rate hike in September and December. If the US economy wants to step it up in terms of growth, we would need to see a steady increase in consumerism, as that will be where the growth comes from.
EUR/USD – now that it has broken below the 1.1500 region, we could see further losses. Support might be found at 1.1287 or 1 1156. A bounce back might run into resistance at 1.1500 or 1.1663.
GBP/USD – has been in a downtrend since April, and if the bearish move continues it could target 1.2590. Pullbacks might run into resistance in the 1.2957 to 1.3000 region.
EUR/GBP – has been pushing higher since April and if the bullish run continues it could target 0.9050. A move lower might find support at 0.8900 or 0.8844.
USD/JPY – the upward trend that began in March is still intact, and if the positive move continues it might target 112.15. Support might be found at 109.94 – the 200-day moving average.
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