US stocks finished lower last night after the long Presidents' Day weekend.
The worse-than-expected earnings per share from Wal-Mart weighed particularly heavy on the Dow Jones. Components of the S&P 500, such as Kraft Heniz and Kroger, were dragged lower too. Wal-Mart fell into the old trap of offering generous promotions in order to entice customers, to try and fend off competition from Amazon. Same-store sales rose at the retailer, but margins were hit, and that is what did the damage to the share price. In the UK, we have seen stiff competition between supermarkets, and it is the consumers who win rather than the shareholders.
The nudge higher in the VIX suggested that there was still some fear doing the rounds. The rally in the US dollar wasn’t helping the situation either, and neither was the increase in US government bond yields.
Traders will be keeping an eye on the UK unemployment and wage figures at 9.30am (UK time). The consensus is for unemployment to hold steady at 4.3%, and for average monthly earnings to remain at 2.4% and for 3 month average earnings on an annual basis to remain at 2.5%. The earnings figures will be the ones to watch as job creation in the UK has greatly outpaced wage increases. Average earnings has been slow to pick up, and should we see it tick up it could trigger another leg higher in the pound.
The most recent Bank of England (BoE) update showed us they are little on the hawkish side, and they signalled interest rates could rise sooner that some traders thought. If Britons see a respectable jump in wages, then we are more likely to see a rise in consumer spending. Dealers are preparing themselves for the possibility of a rate hike in May and the average earnings could be the catalyst.
The minutes from Federal Reserve meeting last month will be released at 7pm (UK time). It was the last meeting of the US central bank that had Janet Yellen at the helm. The policy was kept unchanged as expected, but statement pointed out that there were some signs that costs were creeping up. The minutes will give us a better idea as to what the US central bank are thinking. It is important to remember the impressive US average earnings was a part of the US jobs data, and were released after the Fed meeting so they will not be mentioned.
EUR/USD – has been pushing higher since November and if the positive run continues it could target 1.2600 or 1.2700. Moves lower may find support at 1.2330 or 1.2200.
GBP/USD – is still in the upward trend that it has been in since March, and resistance may be encountered at 1.4400. Pullbacks might find support at 1.3900.
EUR/GBP – has been range bound since December, with 0.8929 being the top end of the range, and with 0.8689 at the bottom of the range. 0.8800 is a region of consolidation any deviation from the area, could see it target either end of the range.
USD/JPY – has been in decline since November, but we have seen a bounce back, and if the upward move continues it could target 108.00 or 109.78. If the wider downward trend continues, it could target 105.53 or 104.00.
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