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Rally in Japan points to higher start for Europe

market relief

market relief

The Nikkei 225 had a good run overnight as a jump in imports and exports led the country to post its first trade deficit since May.

Imports jumped by 7.9% and exports rose by 12.2%, and it was cited that a rise in fuel imports saw the trade surplus swing into a trade deficit of 943 billion yen. Stock markets in China are closed as the country celebrates the Spring Festival.  

Stock markets around the world rebounded last week as investors took at advantage of the relatively low prices of equities. Whenever there is a severe sell-off in the stock markets, traders spend a lot of time wondering is there another leg lower coming, or is it safe to get back in the water. The move higher last week saw some indices reach their highest levels in over a week. Market confidence often attracts even more market confidence, and that is what we are seeing at the moment. The cooling of the volatility index (VIX) has been given some dealers the green light to buy back into the stock market, and while the fear factor keeps sliding, it is likely equity benchmarks will continue to push higher.

Mark Carney, the Governor of the Bank of England is due to speak at 6.45pm (UK time) at Regents University. The latest BoE update showed us the bank is heading in a hawkish direction. Traders are reasonably confident there will be an interest rate hike in May, so all eyes will be the speech. Last week we saw UK inflation hold steady at 3% and the core inflation figures ticked up to 2.7%, from 2.5%. The robust levels of demand in the UK adds to the argument the BoE should raise rate in May.   

The oil market has had a poor February as concerns about over-supply fears are weighing on the price. The productions level in the US is now at record levels, thanks to the rise in shale producers. The Baker Hughes rig out on Friday showed there were 798 active rigs in the US, up from 791 in the previous week. Iran are seeking to increase production be 18% over the next four, which is playing a role in the price decline too. OPEC’s production freeze saw the price of oil hit a three year high in January, but the rally in the price triggered higher production levels in the US.

EUR/USD – has been pushing higher since November and if the positive run continues it could target 1.2600 or 1.2700. Moves lower may find support at 1.2330 or 1.2200.

GBP/USD – is still in the upward trend that it has been in since March, and resistance may be encountered at 1.4400. Pullbacks might find support at 1.4000 or at 1.3900.

EUR/GBP – has been range bound since December and is nearing the top end of the range at 0.8929, and break above it could bring 0.9000 into play. Support could come into play at 0.8800.

USD/JPY – has been in decline since November, and it could target 105.53 or 104.00. A bounce back might run into resistance at 106.85 or 107.32.

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