European equity markets had a mixed session yesterday as the European Commission announced it foresees slower growth across the eurozone.
The region is already cooling, and the organisation expects further declines in growth rates in the next two years. The UK economy is tipped to experience the lowest growth of all the EU countries in the next two years, and uncertainty surrounding Brexit was cited as a reason for the underwhelming forecast. The British economy recovered from the global crash ahead of the eurozone, and for many years was outperforming the currency bloc, but now we are seeing the country cool a little.
Yesterday, the Federal Reserve kept interest rates on hold – meeting expectations. The US central bank announced that ‘further gradual increases’ were to be expected. There was no mention of the recent volatility in the markets. Dealers took this as a sign that further hikes are in the pipeline. An interest rate hike in December is still likely, but looking ahead to 2019, traders are divided as to how many hikes the Fed will announce. The S&P 500 closed lower last night as dealers are a little nervous about the prospect of further monetary tightening.
Overnight, China released the latest CPI and PPI data. The CPI report for October was 2.5%, meeting forecasts. The PPI rate was 3.3%, in line was expectations. Recently, PPI has been cooling, while the CPI rate has been rising, which suggests that real demand is on the rise. Stocks in Asia are in the red as the Fed update is on traders’ minds.
The oil market had another rough ride yesterday as fears about over supply still persist. The Energy Information Administration report on Wednesday showed that US production reached an all-time high, and it exceeded Russia’s –making it the largest producer in the world. Adding to that, there were indications from Iraq and Indonesia that they would increase output in 2019. The recent decline in oil has been so severe that WTI entered a bear market, and that sends a very negative message to traders.
Gold had another day of low volatility, and the firmer greenback put pressure on the commodity. Lately, the inverse relationship between gold and the greenback has been strong. Gold has lost ground in recent sessions, but if it can hold above the $1,214 mark, the bullish move since mid-August might continue.
The British property market had more negative news associated with it yesterday. The Royal Institute of Chartered Surveyors house price balance fell to -10, its weakest reading in six years. The report was in step with the Halifax update on Wednesday, which stated that house prices grew by 1.5% in the 3 months until October – its lowest reading in five years.
At 9.30am (UK time), the UK will announce a raft of data. Trade figures, industrial output and manufacturing output will be released, but traders will be focusing on the growth update. UK GDP on a quarterly basis is tipped to rise by 0.6%, and jump by 1.5% on an annual basis.
Dealers will also be keeping an eye on the US PPI and University of Michigan consumer sentiment reports, which are due out at 1.30pm (UK time) and 3pm (UK time) respectively.
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 1.1300 area to be retested. A move to the upside could run into resistance at 1.1584 – the 100-day moving average.
GBP/USD – surged at the end of last week, and if the 1.3000 mark is retaken and held, it could pave the way for 1.3250 to be tested. If the market turns over again, it could target 1.2661.
EUR/GBP – has been pushing lower since August, and if it holds below the 200-day moving average at 0.8837, it might bring 0.8620 into play. A rally might encounter resistance at 0.9000.
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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