Concerns about core countries European growth go back on the agenda today, after last weeks disappointing German and Euro zone GDP numbers, with the latest manufacturing and services French, German and Eurozone flash PMI data for August.
Given that Q2 growth in the Euro zone virtually stalled in the last quarter there remains a concern that a continued slowdown will impact the markets perceptions of the ability of Europe’s largest economy, in Germany, to act as a potential bail out of last resort for Europe, even if it wanted to.
Disappointing numbers will also increase fears of a double dip recession in Europe, as the fall out from the sovereign debt crisis continues to impact on demand and on sentiment.
As it is Greece has already stated that it expects its economy to shrink even further from its original estimates for 2011, by as much as 5%, as the vicious circle of austerity pushes it closer to the edge of default.
Expectations are for all PMI measures to remain in expansion mode with one exception, but they are all still expected to be down on the previous month.
The exception is expected to be euro zone manufacturing PMI, which is expected to slip back to 49.5, from 50.4 in July. German manufacturing PMI also looks vulnerable with expectations of a slip back to 50.6, from 52 in July.
The more important indicator remains the German ZEW survey with the economic sentiment indicator expected to slip further to -26 from July’s -15.1, which would make it three successive months in negative territory, the first time it would have done that since early 2009.
Concerns about new central bank intervention from the Swiss National Bank are likely to increase if Swiss exports for July show increased declines due to the strength of the franc.
In the US attention is expected to focus on this afternoon’s August Richmond Fed manufacturing index in the wake of last week’s awful Philadelphia numbers, with expectations of a further decline to -5 from the previous figure of -1.
New home sales for July are expected to rise 1% reversing the 1% decline in June.
Gold continues its relentless march higher hitting new all time highs against the US dollar, euro and the pound.
EURUSD – the single currency continues to find itself capped just above the 1.4500 area and last week’s highs.
The major support lies around the 1.4030 area where the 200 week moving average sits. There is also major resistance remaining between July’s peaks between 1.4535 and 1.4575/80. To open up a move towards the 1.4030 area the euro needs to push back and close below the 55 day MA at 1.4330, which has acted as support for the last four days.
There is also minor trend line support from the 1.3835 lows currently around the 1.4195 level.
GBPUSD – despite a new 3 month high at 1.6620 last week the pound slid back but has so far managed to hold above the 1.6400 level. The hanging man we saw on Thursday turned out to be a bit of a noose for cable bears; however the air does appear a little thin above 1.6600. These highs continue to be a key level, with the bigger resistance at 1.6745, the April highs.
Only a break below 1.6420 would target a deeper correction towards 1.6350, or even the 1.6250/60 area which has acted as solid support for the best part of a fortnight now.
Back below 1.6220 retargets 1.6170 while the 200 day MA remains the key support at 1.6085/95, and a sustained break below could well target further losses.
EURGBP – the single currency continues to find support above the 200 day MA around the 0.8660/70 area and this provoked a sharp rebound on Friday. This rebound could extend towards the 0.8800 area and the 55 day MA at 0.8835. It needs a daily close above this level to target higher levels, and a move towards 0.8900.
A close below the 200 day MA has the potential to retarget the May lows at 0.8610 and ultimately the trend line support at 0.8545 from the 2010 lows at 0.8065.
USDJPY – Friday’s fall below the 76.20/30 area, making a new all time low at 75.95 seemed to clear out a load of stops below this key support. The failure to follow through with any conviction saw the market close back above the 76.00 level, as nervousness about possible intervention remains the prevailing sentiment.
The risk remains for further losses, but the market needs to take out the base that appears to be building up around the major lows around the 76.25/30 area.
Any move below these key lows could well see further US dollar losses towards 74.50.
It really needs to rally beyond the 77.30 area to kick on towards the 55 day MA and bigger resistance level at 79.50/60.