European markets enjoyed a fairly solid session yesterday, with the German DAX hitting a new five month high, however the progress proved to be hard to sustain with the DAX, CAC40 and FTSE100 all closing well off from their intraday highs.

The early optimism that came about as a result of yesterday’s eventual agreement on a new EU budget, as well as the make-up of the new pandemic recovery program, soon gave way to the reality that the distribution of any funds still remains some way off.

Despite the scepticism, and there is plenty to go around, yesterday’s agreement does appear to break a previously important taboo, which is the creation of some form of common debt. Netherlands Prime Minister Mark Rutte may claim that this deal is a one-off, however history has taught us that there is no such thing where the EU is concerned. This realisation may well make getting the agreement through the respective member state parliaments a little tricky, as well as offering some pause for thought  

It is also hard to ignore the fact that the amounts in the recovery fund are small, indeed a combined €390bn in grants to the likes of Spain, Italy and Greece, as well as Eastern European countries over three to four years is almost inconsequential when compared to the huge €1trn stimulus Germany package has provided for its own economy alone. The German plans, which amount to 30% of GDP, include various tax cuts, as well as significant amounts of state aid, and grants for electric vehicles and renewable energy.

In comparison, yesterday’s rescue deal is tiny and could be argued that it’s the monetary equivalent of flipping a coin into a begging bowl, as far as southern Europe is concerned.

Despite this the US dollar has had a disappointing 24 hours, losing ground across the board with the Australian dollar the main beneficiary, as a result of a strong move higher in commodity prices, with gold, silver and copper all pushing higher. Gold prices hit a new nine year high, while silver prices hit a fresh six year high.  The greenback also slid against the euro pushing below its June lows, and heading back towards the lows last seen in March.

US markets closed well off their intraday highs as anticipation continues to grow about a new coronavirus stimulus package from US lawmakers, with talk of further stimulus cheques in any new relief package.

The slide off the highs appears to have come about as a result of scepticism from Senate Republican leader Mitch McConnell that suggested another stimulus bill while being discussed, is unlikely to be passed by the end of next week, and this slide has manifested itself into some weakness in Asia markets this morning and looks set to see markets here in Europe also open lower..  

EURUSD – continues to track higher and looks set to close in on the 2019 peaks at 1.1570, as well as the 1.1600 level which is 50% retracement of the 1.2555/1.0635 down move. Dips should be contained to the 1.1370 level and last week’s breakout level.

GBPUSD – continues to track higher closing back in on the 61.8% Fibonacci retracement of the 1.3600/1.1412 down move at 1.2770, as well as the June highs at 1.2815. support comes in at the 1.2500 level and last week’s lows.

EURGBP – found support at the 0.9000 area yesterday, just above the 50-day MA at 0.8980. While above this key support the risk of a return to last week’s peak at 0.9135. While below the 0.9135 area the risk remains for a slide back below the 50-day MA towards 0.8920.

USDJPY – currently has fairly solid support down near the 106.50 area, and resistance up near 107.50, as well as cloud resistance at the 108.00 level.