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Europe set for lacklustre open

Markets in Europe had a softer tone yesterday, reversing some of the gains of Monday, with very little in the way of direction one way or the other. Since the end of last year and the strong gains leading up to the end of last month, markets have exhibited none of the same enthusiasm to carry the momentum higher, with trading activity subdued and a relatively negative bias so far year to date.

It’s hard to assign a singular reason for the lack of enthusiasm so far month to date, apart from a great deal of uncertainty around the prospects for the global economy and the timeline for central bank rate cuts.

Last month saw a great deal of unbridled optimism that the US Federal Reserve could start cutting rates as soon as March this year, however when one looks at the resilience seen in recent economic data, one must question the wisdom behind that sort of mindset. Tomorrow’s US CPI number is set to add another piece to the puzzle of when the Fed might consider a rate cut, although it is unlikely to be conclusive unless we see a big miss against consensus, which could push the prospect of a rate cut further out into 2024.  

Yesterday the World Bank outlined a bleak outlook for the global economy over the next few years, with the organisation predicting that growth was likely to slow for the third year in a row in 2024, nudging their estimate for this year down from 2.6% to 2.4%. The organisation cited the Russia-Ukraine conflict, uncertainty in the Middle East, which could spread beyond the confines of the current combatants, and the potential impacts that escalations could have on global prices. On a regional basis, it is anticipated that North America, Europe, and Asia Pacific would prove to be the biggest drag.  

These concerns about global demand appear to have been behind this week’s decision by Saudi Arabia to cut selling prices on its crude oil, although record US shale production could also be making them nervous of losing market share, although any downside in prices is likely to be limited by the US looking to refill its SPR.

After US markets gave up some of its Monday gains with a negative finish yesterday, today’s European open looks set to another lacklustre affair with a lower open, despite the Nikkei 225 powering on with a fresh 33-year high.   

Bitcoin saw some significant volatility last night after the SEC tweeted that it had given approval for a Bitcoin ETF,  a decision on which is expected today, before subsequently claiming that it had been hacked and had done no such thing. Aside from the fact that this is hugely embarrassing for the SEC, it is also highly embarrassing for the regulator given that in a tweet from October it said that market participants should be sceptical of any announcement that doesn’t come from a regulated source.

EUR/USD – trading in a confined range in the short term with support at last week’s low at 1.0875. Still feels like it wants to move higher while above the 200-day SMA at 1.0830. A break above 1.1030 has the potential to target the December peaks at 1.1140.

GBP/USD – still in the wider uptrend with support just above the 1.2600 area. The bias remains for further gains while above the 200-day SMA as well as support at the 1.2590 area. We need to get above 1.2800 to target the 1.3000 area.

EUR/GBP – finding support just above the 0.8570/80 area, with the main support at the December lows at 0.8545. Currently have resistance at the 0.8670 area.

USD/JPY – found some support at the 200-day SMA yesterday before rebounding. Resistance at last week’s high at the 146.00 level. While below 146.00 the risk remains for a move back to the 140.00 area.

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