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Europe set to open lower after Trump signs Hong Kong bill

CMC Markets

We saw yet another record close for US markets last night after President Trump claimed that the US and China were in the final throes of a phase one deal, however the continued resilience of US economic data isn’t hurting sentiment either.

The latest iteration of US Q3 GDP saw an upward revision to 2.1% from 1.9% and also above the final level in Q2. It clearly shows that there is little sign of the US economy slowing down significantly as we head into year and also diminishes even further the prospect of another US Fed rate cut this year.

With durable goods for October also coming in much better than expected President Trump was even more ebullient than usual as the US took a breather from its trading week for the Thanksgiving break. Weekly jobless claims also fell sharply from 228k to 213k.

The buoyancy in US markets also translated into Europe with the FTSE100 hitting its highest level since August and the FTSE250 hitting its highest level in over a year.

The optimism of the last few days has been thrown up in the air in Asia markets, after President Trump signed the bill supporting the Hong Kong protestors last night. This action sent equity markets sharply lower on concerns that China may well retaliate.

China has consistently said on a number of occasions that they would retaliate if the US interfered in the matters of Hong Kong, which they consider to be an internal matter.

Chinese authorities initial response was to accuse the US of “sinister intentions” pledging to defend Hong Kong’s sovereignty and stability. The Hong Kong government also expressed its objections to the unnecessary interference in Hong Kong’s affairs

As a result of this latest development, which wasn’t entirely unexpected, markets in Europe look set to open lower this morning.

The better than expected US data also helped boost the US dollar, pushing it back close to one-month highs, and its highest level against the Japanese yen since the end of May this year.

One currency it slipped back against was the pound which has gained an extra buoyancy in the last 24 hours after the latest MRP YouGov poll, the one that proved so accurate in 2017, showed that the Conservatives were on course for a 68-seat majority.

In 2017 this was a bit of an outlier poll and not given too much attention, however it proved to be remarkably accurate. It predicted a hung parliament when no other poll was.

It is however only one poll, and when one looks at the internals of the data it wouldn’t take that much of a shift in some key marginals for that majority to come down sharply. With two weeks to go a lot can still happen, despite what has been an awful week for the Labour party, with the party’s troubles over anti-Semitism plastered all over the front pages, and Jeremy Corbyn’s disastrous interview on the BBC.

The biggest danger for the Conservatives now is complacency, something they will be keen to avoid with 2017 still so fresh in the memory. To blow one big lead is unfortunate, but to blow two big leads would be imcompetent. 

EURUSD – appears stuck in a tight range with support at the lows this month just above the 1.0980 level.  The risk remains for a move below the 1.0980 level, with a break opening up a return to the October lows of 1.0880. Broader resistance can be found at the 1.1180 area and 200-day MA.

GBPUSD – finding some buoyancy above 1.2800, however the resistance at the 1.3000 area continues be a key barrier, while we also have support at the 1.2760 area. The 200-day MA at 1.2680 is a big support level and while above it the scenario remains bullish for 1.3200.

EURGBP – appears to be breaking lower, falling below the previous lows at 0.8520, the pound now looks on course for the lows this year at 0.8410. Resistance remains at the 0.8670/80 area, and recent range highs.

USDJPY – looks to be heading up towards the 110.00 area and trend line from the 2018 highs at 114.75. Support now comes in at the 108.70 area, as well as interim support at the 108.20 area and 50-day MA.


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