Having spent most of this month rallying on an expectation that we could see easing measures by the European Central Bank, as well as the Federal Reserve this month, stocks were unable to make further gains last week, with US markets posting their worst week since May, while European markets declined for the second week in succession.

With earnings season now in full swing, sentiment about company earnings potential appears to be mixed at best, with some evidence that we might be seeing a bit of a pickup in economic data, after a slow first half of the year.

This week we have a full calendar in the US with Tesla, Facebook, Amazon, Intel and Boeing, while here in Europe we’ll get to see the latest numbers from Deutsche Bank on Wednesday after the recent decision to axe 18,000 staff, and set up a multi-billion euro bad bank with immediate effect earlier this month. Having also been distracted by talks of a merger with Commerzbank this year the numbers are widely expected to be ugly, with the share price pop in the aftermath of the restructuring announcement quickly dissipating.

The pickup in US economic data last week, as well as contradictory commentary from Fed officials, appears to be muddying the waters for investors about the possible reaction function of the US Federal Reserve at the end of this month and whether we can expect to see a 25bp or 50bp rate cut.

This week’s US data is unlikely to make things much clearer on that front, however those people suggesting that we might get a 50bp cut must be seeing something completely different to the rest of us. Based on the data alone, even a 25bp rate reduction is questionable, even if an increasing number of Fed policy makers do appear to be leaning in that direction.

Last week’s China Q2 GDP reading may well have been the weakest in over 25 years, however the latest industrial production and retail sales data for June did show a marked improvement in the numbers for May, while US and UK retail sales also showed some decent gains as well, which points to some level of confidence amongst consumers.

These signs are mildly encouraging, coming as they do against a backdrop of rising geopolitical concerns, particularly in the Middle East after Iran provocatively seized a British flagged tanker at the weekend, raising concerns that the region is being dragged ever closer to a military conflagration, while President Trump once again raised the prospect of imposing tariffs on the remaining $325bn worth of Chinese goods.

Italian markets also took a swan dive on Friday on speculation that we could be heading towards a possible election as Matteo Salvini geared up for a confrontation with France and Germany over EU immigration policy. Since the European elections Salvini has been weighing up his options as to whether go to the polls in order to rid himself of the constraints of his coalition partners Five Star, who have seen their support drop sharply in the past few months.

All eyes this week are set to be focussed on Thursday’s European Central Bank rate meeting, with opinion divided over whether the ECB will ease policy this month or wait until September when the new TLTRO program is set to begin. Any decision not to go with a 20-basis point rate cut, which markets appear to be expecting to come soon, will inevitably shift the focus to the press conference and President Draghi’s guidance, on the timing and extent of further easing measures.

The pound is also set to find itself in the spotlight this week, with the results of the Conservative party leadership contest widely expected to see Boris Johnson confirmed as Theresa May’s replacement as Prime Minister. The pound had another negative week last week, weighed down over concerns that whoever takes over will keep the prospect of “no deal” Brexit on the table.

It’s somewhat surprising markets have only just woken up to this, given that in the absence of a revocation of article 50, or the passing of a deal, it remains the legal default option. These are the only two options in the hands of the UK parliament, with the granting of an extension in the hands of the EU.

EURUSD – continues to look soft having failed to push through the 1.1400 level last month. Currently finding some support near the 1.1180 level. A much larger support area sits at the May lows at 1.1110.

GBPUSD – hit a two-year low last week at 1.2380 but has been able to rebound quite nicely. Needs to take out 1.2580 to open a return to the 1.2780 area which has capped gains for the last two months.  A move below 1.2380 opens prospect of a move to 1.2100.

EURGBP – hasn’t yet been able to push beyond the highs we saw in January at 0.9117, slipping back from the 0.9050 area. Still in an uptrend and need to fall below the 0.8950 area to diminish the upside risk and argue for a move back to the 0.8870 area.

USDJPY – the rebound from the 106.75 area found itself capped by the 50-day MA earlier this month. For the rally to gain momentum we need to push back through the 108.80 area to retarget a move to the 109.20/30 area. Bias remains to the downside and the 106.00 area, while below the 109.20 area.

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