European markets slipped back yesterday, dragged lower on a combination of concerns over rising coronavirus infection and death rates in the US, as well as worries over an escalation in tensions between the US and China after the US ordered the closure of the Chinese consulate in Houston Texas, prompting fears over possible retaliation.

This morning it was being reported by the South China Morning Post that China would be closing the US consulate in Chengdu in response, which if true seems a fairly measured response.

Talk that the UK was close to abandoning any hope of arriving at an EU trade deal by the end of the year didn’t help either, with the pound also slipping back against the euro. The self-imposed UK government deadline for outlining a bare bones deal comes up at the end of this month, with little indication that either side is close to agreement on any of the key issues, and no new meetings scheduled beyond the current round of talks, which are due to finish today.

US markets on the other hand finished a rather choppy day on a positive note, with investors choosing to focus on optimism over a vaccine, after the US government signed a deal with Pfizer and BioNTech, as well as the prospect of another stimulus plan as well as focussing on specific earnings reports in the absence of any significant economic news.

Both Tesla and Microsoft reported Q2 numbers that beat expectations with Tesla reporting its fourth straight quarter of profits, increasing the possibility that it could be considered for inclusion into the S&P500. Microsoft shares dropped modestly, despite the better than expected numbers, as the company took a $450m charge as a result of closing some of its physical stores. Xbox content and services in particular saw the biggest percentage revenue gains, rising 65% as a result of people staying at home during the lockdowns.

The Nasdaq, which has helped lead US markets higher has started to show signs of treading water near its recent record highs, while recent sharp moves higher in gold and silver prices have started to attract attention.

This week alone silver prices have moved up over 18% to their highest levels since October 2013, while gold prices look set for a retest of their all-time highs set all the way back in 2011, driven by a weaker US dollar, as well as the prospect that we could well see another stimulus program come our way. The increase in geopolitical tension between the US and China is probably also helping to play a part as well.  

It is becoming ever clearer that while concerns are rising over the global economic backdrop, as we head into the second half of the year, markets appear to be hedging their bets more and more when it comes to asset allocation.

Equity investors, while remaining cautious about the outlook, still appear to be happy buying dips, as stock markets continue to trade in a manner that is two steps forward and one back, slowly ratcheting higher, with sharp drops in between.

On the other hand, traditional safe havens are also doing well with gold and silver prices surging while bond yields also slipped back with the UK 10-year gilt posting a record low of 0.12%, while US 10-year treasury yields closed at a three-month low.

Markets in Asia were more subdued this morning with Japan closed for a public holiday, while markets here in Europe look set to open slightly higher on the back of last night’s modest recovery in US markets.

The only highlight of note today is expected to be US weekly jobless claims, which are expected to rise by 1.3m. There is a concern that these could start to rise at a slowly increased rate after several weeks of lower numbers, as several US states start to reimpose lockdown measures. Continuing claims numbers are expected to come in at 17.1m people, down from 17.34m.   

EURUSD – found resistance at the 1.1600 level which is 50% retracement of the 1.2555/1.0635 down move. Has since slipped back but a break through 1.1620 opens up the potential for 1.1820. Dips should be contained to the 1.1370 level and last week’s breakout level.

GBPUSD – has thus far been unable to push beyond the 61.8% Fibonacci retracement of the 1.3600/1.1412 down move at 1.2770, with resistance also at 1.2815, and the June highs. Support comes in at the 1.2500 level and last week’s lows.

EURGBP – rallied back to the 0.9135 level yesterday, and has since slid back. A move through 0.9140 targets 0.9180. Support remains back at the lows this week at the 0.9000 area, just above the 50-day MA at 0.8980.

USDJPY – currently has fairly solid support down near the 106.50 area, and resistance up near 107.50, as well as cloud resistance at the 108.00 level. 

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