Stock markets in Europe and the US finished higher yesterday. 

Hope for a dovish update from the European Central Bank was a factor, and so was an announcement from Beijing that it won’t impose additional tariffs on 16 US imports. The update from the Chinese government was seen as a concession to the US, and it helped the trading relationship. Next month, delegates from the US and China are due to meet, and the move by Beijing was a step in the right direction.  

In a further development to the trade situation, the US was due to impose tariffs on $250 billion worth of Chinese imports on 1 October, and that has been delayed until 15 October. The announcement largely helped stocks in Asia overnight.

Today’s ECB meeting has been at the forefront of traders’ minds all week. The ECB are expected to loosen monetary policy. The base rate is expected to be kept on hold at 0%, and with the deposit rate currently -0.4%, there is speculation it will be cut even further, in a bid to encourage banks to increase lending. There is also talk of a government bond-buying scheme being announced too, but traders remain divided over what the central bank might reveal.

Inflation in the currency bloc is 1% - nowhere near the ECB’s target rate, and it is considerably lower than the CPI rate in the UK and the US, and that underlines the weakness in the region. Germany, the engine room of Europe, contracted in the second quarter, and there is fear it is heading for a recession. The ECB have justification for loosening monetary policy, but it might be a staggered process. The ECB will reveal its interest rate decision at 12.45pm (UK time), and the press conference will follow at 1.30pm (UK time).

Oil sold-off sharply yesterday after it was revealed that President Trump discussed the possibility of easing sanctions on Iran. Earlier in the week, John Bolton left his role as National Security adviser, and it is believed he had a difference of opinion with Mr Trump on a number of matters, but the Iranian issue was believed to have been the final straw.

Gold clawed back some of its recent losses. The metal reached a six-year high earlier this month when stocks were in turmoil, but yesterday the commodity bounced back. Gold's rally yesterday was all the more impressive given the move higher in equities and the rally in the greenback.               

The final reading of German and French CPI will be released at 7am and 7.45am (UK time) respectively, and economists were expecting 1% and 1.2% respectively. Eurozone industrial production will be posted at 10am (UK time) and on a monthly basis, traders are expecting a decline of 0.1%.

At 1.30pm (UK time) US inflation will be posted, and the headline reading is expected to remain at 1.8%, and the core reading is expected to increase by 0.1% to 2.3%. At the same time, the jobless claims report will be announced and economists are anticipating a drop from 217,000 to 215,000.   

EUR/USD – snapped back last week, and if it holds above 1.1000, it might pave the way for 1.1164 to be retested. If the wider bearish trend continues it might target at 1.0900.  

GBP/USD – last Tuesday’s daily candle has the potential to be a hammer, and if it holds above the 1.2200 area, it might bring 1.2400 into play. Support might be found at 1.1900, should the wider bearish move continue.   

EUR/GBP – the weekly candle from mid-August appears to be a bearish reversal, and if the downward move continues it might target 0.8872. A rebound in the currency pair might bring 0.9200 into play.

USD/JPY – rebounded last week, and a break above the 107.15 area – 50-day moving average, it might bring 108.18 (100-day moving average) into play. Should the wider downtrend continue it might retest the 104.50 area.


Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.