European stock markets sold-off heavily yesterday as a mixture of economic and political fears weighed on sentiment. 

Recently, US-China trade relations have been strained due to allegations that Beijing-backed hackers targeted US technology companies, and the possible extradition of a Chinese businesswoman to the US. To add fuel to the fire, the latest Chinese trade figures showed that China’s trade surplus with the US reached a record-high, and that is likely to put extra strain on the relationship. The official figures from Beijing also showed that imports, PPI and CPI showed declines, and that points to weak demand. The disappointing export number suggests that global demand is in decline too.

The Italian budget situation still rumbles on and traders haven’t forgotten about, even though tensions have simmered. Luigi Di Miao the joint deputy prime minister said the government can’t let up on the key reforms of the budget. To balance it out, Matteo Salvini, the other joint deputy prime minister, said he wants to reform the EU from within.

US stocks are still experiencing high levels of volatility and yesterday we saw the major indices lose a lot of ground in early trading only to finish higher on the session. The wild swings suggest that traders are still uncertain about which way to turn. Apple are engaged are in legal battle with Qualcomm as the latter received an injunction to halt some iPhone sales in China. Despite having a choppy session, Apple shares eked out a small gain yesterday.

News that US and Chinese trade officials spoke overnight to discuss getting trade talks back on track helped calm investors’ fears in Asian markets.

Sterling took a dive yesterday after Prime Minister May deferred the vote on the Brexit withdrawal agreement and announced that she intend to see an improvement in relation to the Irish backstop. Traders did not react well to the news, and it sent the pound tumbling.

The pound continues to be in focus as today at 9.30am (UK time) the following reports will be announced: unemployment, average 3 month earnings and average earnings excluding bonuses, and the consensus estimates are 4.1%, 3% and 3.2% respectively.

At 10am (UK time) the German ZEW economic sentiment will be revealed and economists are expecting a reading of -25.

US PPI and core PPI will reported at 1:30pm (UK time). Traders are expecting the headline reading to drop to 2.5% from 2.9%, and he core figure is tipped to fall to 2.5% from 2.6%.

EUR/USD – has been diving lower since late September and if it holds below the 1.1510/00 region, it could pave the way for the 1.1215 area to be retested. A move to the upside could run into resistance at 1.1533 – the 100-day moving average.

GBP/USD – has been broadly pushing lower since September and if the bearish move continues, it might target 1.2365. Resistance might come into play at 1.2750

EUR/GBP – surged in mid-November and if the bullish trend continues it might target 0.9100. A drop below 0.8837 – 200-day moving average, might bring 0.8800 into sight.

USD/JPY – the upward trend that began in March is still intact, and if the positive move continues it might target 114.73. Support might be found at 111.39. 

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