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Europe to open higher amid high tensions

The Nikkei 225 is trading lower today even though Japan posted strong growth numbers.

In the second-quarter the country grew by 4% on an annualised basis, and traders were expecting a growth rate of 2.5%.

In China, July retail sales and industrial production on a year-on-year basis rose by 10.4% and 6.4% respectively. Both reports undershot analysts’ expectations, and declined on the year.

The Dow Jones and the S&P 500 finished higher on Friday, but both had their second worst week in 2017 last week, largely down to the tensions between the US and North Korea. While the standoff between the two counties continues, investors will continue to be nervous.

The US President announced he has not ruled out military action in Venezuela. Mr Trump also has problems at home, given what happened in Charlottesville, Virginia over the weekend. The President has a full plate at the moment, so investors who are hoping for new infrastructure projects, banking and tax reform could be waiting for some time.

US CPI in July increased to 0.1% and 1.7% on a month-on-month basis and on a year-on-year basis respectively. Both were slightly under economists’ expectations, but at least it showed that demand in the US is picking up. According to Fedwatch, the likelihood of an interest rate hike from the Federal Reserve in December is 38%. A lot of the gains the greenback made on the back of the July jobs report have been pared.

Last week WTI and Brent Crude oil dropped for a second week in a row, and when you consider that OPEC members held a two day meeting in Abu Dhabi which stated last Monday, it says a lot. The International Energy Agency (IEA) stated that OPEC’s compliance with the agreed production cut fell to 75% - the lowest rate since January. At a time when OPEC members have agreed to cap production, we have seen some countries actually increase their output.

On Thursday, we heard from Russia’s Gazprom Neft, who stated they should consider increasing production, once the current production freeze runs out in March 2018. To top it all off, Friday’s Baker Hughes report showed an increase of 3 actives rigs in the US to 768. The global supply-glut is still hanging over the market.

At 10am, the eurozone will release the industrial production figures for June, and the consensus is for a reading of -0.4% and 2.9% on a month-on-month basis and on a year-on-year basis respectively. The relative strength of the euro is hitting the region, and traders want to see if that is still the case. 

EUR/USD – after bouncing back at the end of last week, it is testing the resistance at 1.1830. A move above 1.1830 would bring the resistance at 1.1910 into sight. A break below 1.1800, would bring 1.1700 into play. The next support level down is 1.1613.

GBP/USD – could receive support from the 50-day moving average at 1.2936. If we see a drop below 1.2936, the 100-day moving average at 1.2854 would be the next level to watch. 1.3059 and 1.3164 will be the upside targets.

EUR/GBP – is hovering around the support at 0.9088, and if the level holds, the resistance at 0.9141 will be on the radar. A drop below 0.9088, would bring the support at 0.9000 and 0.8923 into play.

USD/JPY – is testing the resistance at 109.56. A break above 109.56 would bring 110.18 into sight. Should it turn lower, support will come into play at 108.82.

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