European markets look set to open lower on Friday, coming off multi-month highs in the wake of the horrific attack last night during Bastille celebrations in Nice, France.
The lower open comes despite some more positive economic data from China including a growth rate of 6.7% y/y in the second quarter. Chinese industrial production and retail sales growth for June also grew at faster rate than expected.
Germany’s DAX index has regained the psychological 10,000 barrier as global market sentiment continues to improve following the Brexit vote. The kick-off of US earnings season is still a big potential hiccup for markets but results from banking giant JP Morgan yesterday has provided a solid start.
US and European markets reacted well to the improved political outlook in the UK on Thursday but progress on the UK’s own benchmark was hurt by a sharp rise in Sterling. The Bank of England’s decision caught some currency traders offside, creating a sudden short-covering rally in the British pound.
The UK currency still remains well below its pre-Brexit highs of nearly 1.50 against the US dollar but expectations of central bank action played a big role in its fall. The Bank of England on hold, even with hints of action at its next meeting in August could deter more speculative shorts for the time being. BOE governor Mark Carney is scheduled to speak early afternoon on Friday.
Stock markets, especially the FTSE 100 have been brushing aside the risks associated with Brexit because of the expected central bank response. The Bank of England’s decision to stay pat could prove a turning point in that line of thinking.
A barrage of US economic data expected out on Friday includes retail sales, inflation, industrial production and consumer confidence. The data will either confirm or deny the idea that May’s disappointing jobs report was an outlier and that the better jobs number for June is a better reflection of the state of the US economy.
EURUSD – The euro is sitting in the middle of a 200-pip range between 1.10 and 1.12. The large downswing on June 24 through the bottom of its old trading range implies further downside towards 1.08.
GBPUSD – Bullish divergence continues to play out with the upswing from the low of 1.28 now extending to 1.34. Another test closer to the lows may be needed to establish a bottom. A break of 1.28 could target the 1.25 handle.
EURGBP – Euro-Sterling has fallen further to 0.825. A break lower could target the old swing high at 0.8117, though the uptrend favours another move higher to the high above 0.86.
USDJPY – Having failed twice at 100, dollar-yen has rebounded to 106 but has found some short-term resistance from the 50-day MA, which has acted as resistance throughout the downtrend that began in December.
Equity market calls
FTSE100: to open 17 points lower at 6,637
DAX: to open 8 points lower at 10,060
CAC40: to open 27 points lower at 4,358