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European equities tipped to open lower

Stock markets in Europe and the US finished higher on Friday despite President Trump ratcheting up trade tensions. 

Mr Trump threatened to impose a 20% tariff on all cars imported from the EU. The announcement initially sent European stocks lower, especially German equities, but markets managed to rebound before the close. It seems that the warning from Daimler on Thursday that profit might fall due to China’s levy on US cars made traders fearful that Mr Trump would set his sights on the EU.

Dealers saw how things escalated between Washington DC and Beijing, so it is likely we will see something similar with Brussels.  Donald Trump only threatened to impose tariffs on EU cars, and this is clearly a ploy to get a concession from the group. The US president has no problem slapping on levies and if things don’t go his way, it is likely we will see that happen. The German car manufacturing industry is at the heart of Europe, and Mr Trump will have no problem targeting it.

At 9am (UK time) the German Ifo business climate report will be released and the consensus estimate is 101.7, down from 102.2 in May. It is worth noting that the April reading was 102.1 – its lowest since late 2012. Confidence in the largest economy in Europe has fallen dramatically, and the uncertainty surrounding trade tensions will make matters worse.

Oil stocks had an impressive finish to the week, as the underlying oil market surged in the wake of the Opec meeting. The cartel announced plans to increase output by 1 million barrels per day (bpd). Given that some oil producing countries are tapped out, in reality the increase in output won’t be that much. Some traders believe in real terms the increase in output will equate to an increase of 600,000 bpd, while an Iraqi official believes it will be 770,000 bpd. The oil market rallied on the back of the announcement as the actual increase in output was below initial forecasts.

Sterling was given a nice boost against the US dollar at the back end of last week due to the more hawkish than expected update from the Bank of England (BoE). Three policy makers voted in favour of hiking rates when the market was only pricing in two votes. The pound will be in focus this week as policy makers Jonathan Haskel and Ian McCaffety will be speaking on Tuesday, while Mark Carney the BoE chief, will deliver the financial stability report on Wednesday. 

EUR/USD – has been in a downtrend since March and while it remains below 1.1851 its outlook is likely to remain negative. The 1.1510 area might act as support, but a break below it could bring 1.1400 into play.

GBP/USD – has been in a downtrend since mid-April, and it recently hit a seven month low. While it remains below 1.3472, its outlook might stay negative. A break below 1.3102 might put 1.3000 on the radar. 

EUR/GBP – has been broadly edging lower since April and if the negative move continues it could target 0.8725 or 0.8700. A rally might run into resistance at 0.8820 (200-day moving average) or 0.8844.  

USD/JPY – after hitting a five month high in May it has cooled a little. While it holds above the 50-day moving average at 109.52 it might retest 111.39, and beyond that 113.00 might act as resistance. A drop below 109.52 might bring 108.16 (100-day moving average) into play. 

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