This week’s European economic data has painted a rather mixed picture for Europe with Germany holding up fairly well, while the rest of Europe continues to struggle in the face of austerity and slips into recession. Despite the fairly resilient German data yesterday’s German bond auction was uninspiring with a low bid to cover of 1.3 and a rather low yield of 1.93%.
Today’s sale of around €8bn of 2021, 2023, 2035 and 2041 French bonds will be much more closely watched given the concerns about France’s triple “A” rating. With 10 year yields around 3.3%, the only question will be how much France will have to pay up to get the issue out of the door.
Earlier this week German unemployment fell to a post reunification low of 6.8%; however today’s release of Italian unemployment data is unlikely to paint as rosy a picture for Italy’s jobless. Expectations are for a quarterly rise to 8.1%, from 8%, with the monthly rate set to remain at 8.5%.
In the UK the December PMI data for manufacturing and construction out so far this week has beaten expectations on both counts and the hope is that today’s services PMI will similarly outperform. Expectations aren’t too high with consensus for a slip back from 52.1 to 51.6, still in expansion mode and raising hopes that UK Q4 will show growth of some form or other, in a few weeks time.
In the US the state of the jobs market will face scrutiny this week, especially with the Dow at six month highs, starting today with the release of the latest December ADP payrolls report as a precursor to tomorrow’s non-farms payrolls numbers.
The December ADP figure is expected to show again of 175k jobs, down from November’s 206k rise, while the latest weekly jobless claims number is expected to show a decline from last week’s 381k to 375k.
The latest services ISM data for December is also hoped to follow on from the improvement seen earlier this week in the manufacturing ISM data with expectations of an expansion of 53 from November’s 52.
EURUSD – the twin lows around the 1.2850/70 area remain the main barrier to further losses towards 1.2590, after yesterday’s slide back from the 1.3080 area.
Given the sharpness of recent moves we could well continue to see choppy range trading unfold now between the recent lows at 1.2855 and the 1.3150 and even possibly 1.3220 levels.
GBPUSD – the pound remains fairly resilient and continues to remain susceptible to a test of the 55 day MA at 1.5740 and trend line resistance at 1.5785 from the 1.6620 highs in August. A move beyond 1.5780 could well target 1.5900.
While above 1.5570 the probability of test of this key resistance remains a possibility.
A move below the 1.5570 area opens up the lows just below 1.5400 again.
Only below the 1.5270 lows in October targets the 1.5190 61.8% retracement of the 1.4230/1.6745 up move.
EURGBP - yesterday’s move below the 2011 lows at 0.8285 keeps the focus on further downside for the euro.
Yesterday’s move to 15 month lows now opens up a move towards the 0.8200 area.
Pullbacks are likely to find resistance around the 0.8305/10 area and old December lows, while above here re-targets 0.8370.
The key resistance remains around the highs for the last three weeks at 0.8425, and only a move beyond here would target a move back towards 0.8450 and even the 200 week MA at 0.8567.
USDJPY – the break below the 55 day MA has seen the US dollar slide sharply and so far the support around the November 2011 lows at 76.50 appears to be holding for now. A close and break below here opens up the all-time lows at 75.30.
Resistance now lies back at the 55 day MA at 77.45 and only a move back above here would look to see a move higher towards the trend line resistance at 78.00 from the 2007 highs at 124.15.
The 200 day MA at 78.90 is the key long term resistance.