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Volatility low over trade situation, ECB in focus

Yesterday, European equity markets started and ended the session in the red, but the major eurozone equity benchmarks were actually in positive territory for some of the afternoon.

The trading relationship between the US and China remains a work-in-progress, and the situation hasn’t deteriorated, but it hasn’t improved at the same time. Stocks in Asia are broadly a little higher even though the trade dispute still continues.

The pound enjoyed a good run yesterday even though nothing has changed in relation to Brexit. As it stands the UK is set to leave the EU in late March, and it is on track for a no deal scenario, unless something new is brought to the table. There is talk the Labour party is moving towards supporting a law that would delay Brexit, and the EU said an extension is possible, and that has lifted sterling. Even if an extension comes to fruition, it only defers the issue. Yesterday, Andy Haldane, the chief economists at the Bank of England, the rates might need to be hiked if the economy ‘ticks along’.

Strong corporate earnings from IBM and Procter and Gamble assisted the major US indices at the start of the trading session yesterday, and they managed to finish higher on the day.

The oil market had a similar move to equities, whereby it was registering gains during the session, but the old fears about US-China trade relations resurfaced. On Tuesday the Energy Information Administration (EIA) said it expects US output to rise further. The EIA oil and gasoline inventory reports will be released at 4pm (UK time), and the traders are expecting oil stockpiles to fall by 435,000 barrels ,and gasoline stockpiles are tipped to rise by 2.49 million barrels.

The eurozone has been going through as economic slowdown recently, and that has fed into the fears about a slowdown in the global economy. At 8.15am (UK time), France will announce the flash manufacturing and service reports, and the consensus estimate is 49.9 and 50.5 respectively. Germany will announce its flash manufacturing and services reports at 8.30am (UK time) and economists are forecasting 51.3 and 52.1 respectively.

The currency bloc will be in focus in the afternoon also as the European Central Bank (ECB) will announce its interest rate decision at 12:45pm (UK time), and the press conference will be held at 1.30pm (UK time). No change is expected to monetary policy, but a shift in outlook is on the cards. Last year the ECB suggested on a few occasions that rates might be hiked at the back end of 2019, and now the situation is different, so the central bank might be move dovish in their outlook.

US jobless claims will be announced at 1.30pm (UK time) and traders are expecting a reading of 220,000.

EUR/USD – despite the recent pullback, it has been broadly been pushing higher since mid-November, and it might retest the 1.1570 area. Trend line support from the November lows might come into play at the 1.1330 region.

GBP/USD – has been pushing higher for over one month, and if it holds above 1.3000, it might bring 1.3174 into play. Support might be found in the 1.2815 region.

EUR/GBP – has been pushing lower since the start of the month, and support might come into play at 0.8620. The 200-day moving average at 0.8864 might act as resistance.

USD/JPY – if it manages to hold above the 109.20 area, it might target 110.00 or 111.20 – 200-day moving average. 108.00 might provide support.



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