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Strong start expected for EU equities, and sterling steady

European equities are set for a higher start as Asian markets rallied overnight. 

The tense trade standoff between the US and China failed to discourage buying as traders have come to terms with the latest round of tariffs.

David Davis resigned as Brexit secretary and the pound is holding up relatively well on the back of it. This will put severe pressure on Prime Minister May, and there are questions being asked about how long she will last in the top job.

US equities finished on a positive note on Friday after a middle-of-the-road non-farm payrolls report took attention away from the tariff spat. The trade situation will be in focus as President Trump will be in Europe this week for the NATO summit. Mr Trump has already voiced his opinion that he feels the US pay a relatively large amount to the NATO budget. Mr Trump is still playing the ‘America first’ card, and there is a possibility that global trading relations could take a further knock.

Last week there were signs that the relationship between the EU and the US were improving, after it was reported that the Trump administration is contemplating rowing back on the threat to impose 20% tariffs on EU cars. It was also reported that Angela Merkel is considering throwing her weight behind the proposal of cutting levies on US cars into the EU. 

Mario Draghi, the head of the European Central Bank (ECB) is due speak in Brussels later today. Traders will be listening carefully to the central banker’s speech as it may give away clues to possible changes to the monetary policy.  Last month, the head of the ECB announced the bond-buying scheme would be wound down at the end of the year. Mr Draghi also suggested that interest rates are unlikely to be hiked until at least the back end of 2019. The currency bloc has been going through a mixed economic period, and Mr Draghi’s update could give an insight into what the central banker is thinking.

The Baker Hughes report showed the number of active oil rigs in the US increased by five to 863. It was the first increase in active oil rigs in three weeks. There has been a lot of volatility in the oil market as there is speculation the disruption to the market on account of the proposed sanctions on Iran. The planned increased output from Opec hasn’t derailed the upward trend that oil has been in for the past year.

EUR/USD – has been edging higher since late June, and a break above the 1.1850 area could pave the way for 1.2000 being tested. A move below the 1.1510 region could put 1.1400 on the radar.

GBP/USD – has been in a downward trend since April, but it has been creeping higher recently. A move through 1.3315 could bring 1.3472 into play. If the wider bearish move continues it could target 1.3049.

EUR/GBP – has been in an upward trend since mid-April and if the bullish move continues it could target 0.8900. A pullback might find support at 0.8785 – the 100-day moving average, and a break below 0.8785 might bring 0.8725 into play. 

USD/JPY – has been pushing higher since late-May and if 111.39 is cleared it could pave the way for 113.57 to be targeted. A move to the downside might find support at 109.37 – 109.19 area.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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