The FTSE 100 underperformed the rest of Europe yesterday. 

The disappointing manufacturing figures from China weighed on mining and energy stocks, and the London markets relatively high exposure to commodity companies held it back. The FTSE 100 finished off the lows of the day, but the DAX, CAC 40 and the IBEX 35 finished up on the session.

Politics played a role in yesterday’s move. The meeting between President Trump and Kim Jong-un ended abruptly after the North Korean leader called for an end to all sanctions on the rouge state. It wasn’t an ideal way to end the summit, but it could also have gone worse. The major US indices closed slightly lower last night.

Overnight, the Caixin survey of Chinese manufacturing was released and the reading was 49.9, and economists were expecting 48.5, and it was an improvement on January’s 48.3. It was the third month in a row that the survey was in negative territory, but stocks in Shanghai and Hong Kong are showing small gains.

We heard from a couple of influential individuals in the US yesterday. The Fed’s Richard Clarida, said he said that financial conditions are more supportive now that they were at the back end of 2018. The central banker also added that there is ‘no real evidence’ of cost push pressures, which suggests the US central bank won’t be enticed to hike interest rates in the near-term. Economic advisor to President Trump, Larry Kudlow, said fantastic progress was made in relation to the trade talks with China. Steven Mnuchin, US Treasury Secretary, said progress on the trade talks are being made, he hopes more progress can be achieved this month.

The US economy grew by 2.6% in the final quarter of 2018, which easily topped the 2.3% forecast. On a yearly basis, the economy grew by 2.9% -its fastest rate since 2015.  The announcement drove the US dollar index higher, and helped it snap out of the downtrend that it has been in this week.

The move higher in the US dollar sent gold to its lowest level in nearly two weeks, it still remains in the wider upward trend that it has been in for a number of month now.  

The euro was having as good session before the US released its growth figures. France and Spain both saw slight increases in inflation, while the German CPI rate held steady. It paints a picture of increased demand, which is encouraging given the euro-area has been going through a tough time lately. This morning, Spain, Italy, France and Germany will release their manufacturing reports between 8.15am (UK time) and 8.55am (UK time), and traders are expecting 51.7, 47.2, 51.4 and 47.6 respectively. Eurozone CPI will be released at 10am (UK time), and dealers are expecting an increase to 1.5%, from 1.4%.

UK mortgage approvals and mortgage lending will be announced at 9.30am (UK time), and the consensus estimate is 63,400 and £3.9 billion respectively.

At 1.30pm (UK time) the US core PCE will be announced and economists are expecting it to hold steady at 1.9%. The US ISM manufacturing and University of Michigan consumer sentiment reports will be rereleased at 3pm (UK time) and traders are expecting 55.5 and 95.7 respectively.

Canadian fourth-quarter annualised GDP will be released at 1.30pm (UK time) and dealers are expecting 1.2%.  

EUR/USD – has been broadly pushing lower since early January, and if the negative move continues it might retest the 1.1216 area. Resistance might be found at 1.1400 or 1.1500.  

GBP/USD – has been driving higher since early December, and if it holds above the 200-day moving average at 1.3000, it might retest the 1.3472 area. The 1.2775 area region might act as support.

EUR/GBP – while its holds below the 200-day moving average at 0.8857, its outlook is likely to be negative. 0.8500 might act as support. A rally might encounter resistance at 0.8700. 

USD/JPY – has been on the rise since early January, and if the bullish move continues it might target the 112.00 area. A break below 109.55, might bring 108.50 into play. 

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