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Quiet start tipped for Europe

It was a mixed day in Europe yesterday. The major equity markets were offside for the first half of the session, as the feelgood factor from the Trump tariff deferral faded. Investors were delighted that the trade spat between the US and China won’t be intensifying in the near-term, but there is still a long way to go, and the uncertainty still lingers.

Eurozone stocks recouped their earlier losses in the afternoon, and the DAX, CAC 40 and FTSEMIB finished in positive territory. The FTSE 100 on the other hand was hurt by the rally in the pound and closed firmly in the red.

Asian equity markets made small gains overnight as traders await the meeting between President Trump and Kim Jong Un. The US president will try to convince the North Korean leader to abandon his nuclear weapons ambitions. Investors in the region are feeling positive about the meeting.

Sterling rallied on the back of an update from Theresa May. The prime minister is hoping to secure further concessions from the EU in the next few weeks, and then there will be a vote on that deal. Given how unpopular the original deal was, and the EU’s unwillingness to bend, we could be looking at another massive defeat for her proposal. Should her deal be voted down, there will be a vote on whether MPs want a no-deal Brexit or not – there is little appetite for this. There might even be a vote to extend article 50, depending how the other votes go. Sterling soared as traders felt Brexit might be pushed back.

US stocks closed a little lower last night. Jerome Powell, the head of the Federal Reserve, was speaking in front of the senate committee on banking, housing and urban affairs yesterday. The Fed chief was upbeat and described the US economy as ‘healthy’ and stated the outlook as ‘favourable’. The central banker said that financial conditions are less supportive now that there were last year, but he made it clear that he’s willing to alter his policy should it be needed. Mr Powell will be speaking again today at 3pm (UK time).

The US released some mixed data yesterday, building permits edged up to 1.32 million, topping the 1.29 million forecast, while housing starts slipped to 1.07 million, undershooting the 1.25 million estimate. The CaseSchiller house price index report showed that prices grew by 4.2% on an annual basis in December – its slowest rate since 2014. The consumer confidence report for February rose to 131.4, easily topping the 124.7 forecast.    

At 10am (UK time) the eurozone consumer confidence report will be released, and traders are expecting a reading of -7.4, which would be unchanged on the month. The US factory orders report will be revealed at 3pm (UK time), and economists are expecting an increase of 0.5%, from a decline of 0.6% in November.  

EUR/USD – has been broadly pushing lower since early January, and if the negative move continues it might retest the 1.1216 area. Resistance might be found at 1.1400 or 1.1500.  

GBP/USD – has been driving higher since early December, and if it holds above the 200-day moving average at 1.3000, it might retest the 1.3360 area. The 1.2775 area region might act as support.

EUR/GBP – while its holds below the 200-day moving average at 0.8860, its outlook is likely to be negative. 0.8500 might act as support. A rally might encounter resistance at 0.8700. 

USD/JPY – has been on the rise since early January, and if the bullish move continues it might target the 112.00 area. A break below 109.55, might bring 108.50 into play. 


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