The single currency stabilised across the board on news that Angela Merkel and Nicolas Sarkozy will meet in Paris next week to discuss the current crisis. With Sarkozy ordering French ministers to come up with a new budget plan by next week the pressure is on to try and stem the tide of fear permeating through Europe, amidst concerns about France’s rising debt to GDP ratio.
Today’s release of French Q2 GDP numbers are expected to show that growth has slipped sharply back from Q1’s 0.9% to a mere 0.2% and will give a good indication of the strength of the slow down caused by the current uncertainty in Europe.
In Italy finance minister Tremonti promised reforms to boost growth and the public finances, admitting that his hand was being forced by the ECB. This revelation has been seized upon by the government’s coalition partners the Northern League who accused the ECB of trying to bring down the government with its demands.
With the unions opposed to the measures being implemented it is likely to be a rocky road. The Italian trade deficit for June is expected to increase to €2.5bn, while euro zone industrial production is expected to come in flat.
Yesterday’s comments by the Swiss National Bank about the possibility of a currency peg saw a sharp bout of profit taking after the record highs seen this week in the Swiss currency. While this could well see some shake out in Swiss longs it is hard to see how it would work in practice given the mixed success with respect to previous currency pegs around the world.
After yesterday’s better than expected weekly jobless claims, markets will be hoping for further good news from US retail sales for July which are expected to improve to 0.5% from 0.1% in June. The market conveniently chose to ignore the fact that the US trade balance for June blew out further, to $53.1bn which could suggest a further Q2 growth downgrade.
Given that for most of July the only talk was of the debt ceiling debacle, it wouldn’t be too much of a surprise if the numbers missed expectations, due to the uncertainty created around those events.
Later on University of Michigan for August is expected to slip back to 63 from July’s 63.7.
EURUSD – the market continues to range within the broader 1.4000/1.4500 window and continues to remain very schizophrenic, but the bias remains for a lower euro. The major resistance remains around the July highs at 1.4575/80 with the major support just above the 200 week MA at 1.4030 which remains a tough nut to crack.
There is also some resistance around the 1.4350 area if we get there from the 1.4535 highs in late July.
GBPUSD – the pound continues to put in lower lows without really running away. The 1.6250/60 area remains a key obstacle to further gains in the short term, while above 1.6250/60 retargets the 1.6380 area.
The 200 day MA remains a key support at 1.6080/90, and a sustained break below could well target further losses.
The market continues to remain in a trading range, though with the rallies getting shallower it would appear that we could be building up for a broader move lower.
EURGBP – continues to struggle much above the 0.8830 area where the 55 day MA sits. It needs a daily close above this level to target higher levels.
The key support remains around the 200 day MA around 0.8660 and while below yesterday’s highs the potential remains lower.
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 0.8540 from the 2010 lows at 0.8065.
USDJPY – the US dollar continues to build up a base around the major lows around the 76.25/30 area with yet another attempt rebuffed yesterday. Any move below these key lows could well see further US dollar losses towards 74.50. 10 year US treasury yields rebounded off their record lows yesterday which has underpinned the dollar slightly but until these yields rally above 2.5% it is hard to see how the US dollar can rally at the moment.
It needs to rally beyond the 77.80 area to kick on towards the bigger resistance level at 79.50/60. Once through the 79.50/60 area it then needs to kick on and push through the 80 level and 55 day MA towards the trend line resistance at the 81.00 level.