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Positive start expected for Europe

US markets had a mixed finish last night as there is still unease about a potential trade war. 

The Dow Jones gained nearly 0.5% while the S&P 500 and NASDAQ 100 closed marginally lower. The chatter in the markets is that President Trump is keen to impose tariffs on about $60 billion worth of imports from China. Mr Trump is eager to rebalance the trading relationship between the two countries. Traders are cautious that such a move could see a retaliation from Beijing. Boeing has become the barometer of a potential trade war, as it is believed China could slap levies on the aerospace industry.

This morning traders will be keeping an eye on the inflation report from the European Central Bank (ECB), and the consensus is for a decline to 1.2% from 1.3% in January. During the week, ECB president Mario Draghi stated that inflation is subdued. The update this morning could confirm the cost of living in the currency bloc is moving further away from its 2% target. The ECB’s loose monetary policy has seen growth in the area, but CPI is the one major economic indicator that continues to lag.

Traders are wondering what the ECB will do come September, when the monetary policy comes to an end. It is in the central bank’s interest to keep the euro a little on the soft side, as it would assist the economy and stimulate inflation. The relative strength of the euro recently is curtailing inflation and economic activity. We have seen a slight cooling in the growth rate of the services and manufacturing sector.  

In the past few days there was increasing evidence that prices are edging up in the US. On Wednesday PPI ticked up to 2.8%, from 2.7%, and yesterday import prices rose by 0.4%, up from 0.2%. It is likely these costs will be passed on to the consumer down the line. Retail sales and durable goods sales have been less impressive, and there is less talk of four interest rate hikes from the Federal Reserve this year.

The US will release housing starts, building permits and the University of Michigan consumer sentiment report this afternoon. At the moment, economic releases may play second fiddle to American politics, but the US central bank are still on their path of monetary tightening and the figures will be carefully watched.   

EUR/USD – has been pushing higher since the beginning of the month and resistance might be found at 1.2449 or 1.2500. Support could come into play at 1.2200. 

GBP/USD – has been edging higher over the past two weeks. A move above 1.4000 could put 1.4150 on the radar. Support may be found in the 1.3800 region.

EUR/GBP – while it remains below the 200-day moving average at 0.8892 its outlook may remain negative. Support might be found at 0.8800. A break below 0.8771 might put 0.8689 on the radar. A move above 0.8892 could see it retest 0.8967.   

USD/JPY – has been in decline since November and a break below 105.25 could see it target 104.00. Rallies may run out of steam at 107.32 or 108.00.


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