Geopolitical tensions loomed over European equity markets yesterday, and the result was the bulk of the major equity benchmarks ended the session in the red.

Some traders are getting nervous ahead of the meeting between President Trump and China’s Xi Jinping. 

The relationship between the US and China has been volatile in recent months, and traders are viewing the fact the meeting is taking place as a positive sign, but the gulf between the two sides is large. The Trump administration have major concerns about intellectual property protection, and on the other side of the debate, the Chinese government think the Huawei ban is unfair. Should things not work out, both sides have economic tools to put pressure on the other one.

The US revealed some disappointing economic indicators and that dragged stocks lower as there are fears the economy is cooling. The new home sales report showed a 7.8% fall in May, and the April report was revised from 6.9% to -3.7%. The Conference Board consumer sentiment reading dropped to 121.5, from 134.1 in May. The June reading was the weakest since July 2017. It would appear there are pockets of the US economy that are a little on the soft side.

James Bullard of the Federal Reserve said it is surprising that inflation is below target given the growth level, and the central banker said an interest rate cut 0.5% in July would be ‘overdone’. Mr Bullard is known to be dovish, but in light of yesterday’s data, the calls for looser monetary policy might rise.

Jerome Powell, the Federal Reserve chief was speaking in New York yesterday, and he said the risks to the US economy have increased, and that things have changed since the meeting in May. The central banker also expressed the Fed’s independence, and he said the institution won’t bend to political pressure, which was clearly a dig at President Trump who has been calling for lower interest rates and a softer US dollar. US equity markets finished lower as Powell’s update wasn’t as dovish as traders were hoping, and that led to a mixed session in Asia.

It’s not just the US that posted poor numbers yesterday. The Confederation of British Industry realised sales report dropped to -42 in June – its lowest reading since March 2009. The report from the same period was last year was coming from a high reading, and not doubt Brexit uncertainty is a factor. Sterling lost ground against the euro and the US dollar on the back of the announcement.

Gold’s impressive rally continued and the metal reached a level last seen in May 2013.The multi-year high was a significant move, but gold lost ground in the wake of the announcement from Jerome Powell.

Bitcoin reached a fresh 15-month high yesterday as the digital currency has emerged from the wilderness of 2018, and the cryptocurrency is turning heads again.  

At 7am (UK time) the German GfK consumer climate will be released and economists are expecting a reading of 10, which would be a slight decline from the 10.1 reading posted in May.

Mark Carney, the head of the Bank of England (BoE), will be in front of the Treasury Select Committee today at 10.15am (UK Time). The UK CPI rate in May slipped back to 2%, from 2.1% in April. The dip in the cost of living suggests that demand is falling, and the CPI level is now at the BoE target.  It is worth noting, at last week’s BoE meeting, the second-quarter GDP outlook was trimmed to 0.0% from 0.2%.  

The US durable goods report will be released at 1.30pm (UK time), and the consensus estimate is -0.10%, which would be an improvement on the 2.1% fall in April.

The Energy Information Administration Report will be released at 3.30pm (UK time), and oil stockpiles are tipped to fall by 2.54 million barrels, while gasoline inventories are expected to jump by 288,000 barrels.

EUR/USD – has been largely pushing higher since late May, and a break above 1.1400 might bring 1.1448 into play. A move back below 1.1200 might pave the way for the 1.1110 area to be retested.

GBP/USD – has been driving lower since mid-March, and if the bearish move continues it might encounter support at 1.2476 region. The 1.2800 area might act as resistance.

EUR/GBP – has rebounded for over one month, and if it holds above 0.8800, it might bring 0.9000 into play. A move to the downside might bring the 200-day moving average at 0.8780 into play. 

USD/JPY – has been in a down trend since late April, and if the bearish move continues it might target the 106.00 mark. Resistance might be found at the 50-day moving average at 109.90.

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