It was a quiet day yesterday on the financial markets as there wasn’t any major news to influence traders.
The week has a packed schedule as there are central bank meetings, a general election, in addition to a tariff deadline, but yesterday was far from exciting. European equity markets posted small losses, and the mood on Wall Street was lacklustre too.
The blistering jobs report the US revealed on Friday faded from traders’ minds as the planned events of this week took centre stage. The US are due to slap tariffs on more than $150 billion worth of Chinese imports on 15 December, and the, will they, won’t they, question is circulating around the markets. The US-China trade situation is likely to be the biggest event of the week. In recent weeks, the language has been largely hopeful but nothing is a done deal.
The latest trade figures from China show that exports dropped by 1.1%, so this could be proof that President Trump’s tactics are working, but Beijing can play the long-game, as the Donald will be seeking re-election in late 2020. The economic war with China will help Trump with a certain section of US voters, so the US president might drag out the trade war until the election.
Sterling continued to make gains yesterday as the Tory party are still proving to be popular in the opinion polls. As we saw in the last three years, opinion polls don’t always get it right, but the consistent lead by Boris Johnson’s party has encouraged dealers to buy into the pound.
Gold, suffered a knock on Friday following the stellar non-farm payrolls report. Yesterday, the commodity pulled back some of its losses but the positive move didn’t last long. That’s been a common theme with gold recently, whereby by it has failed to hold onto gains when traders have been in a slightly risk-off mood.
Overnight China posted some economic announcements. PPI was -1.4%, while economists were expecting -1.5%. Keep in mind the previous reading was -1.6% The CPI rate came in at 4.5%, and the consensus estimate was 4.2%, while the last reading was 3.8%. The CPI rate is nearly the highest level in eight years, but that was on account of the swine flu. The core CPI reading slipped to 1.4% from 1.5%, so underlying demand is subdued.
It was reported that Beijing has ordered all state bodies to remove foreign technology within three years. The move could be construed as a tactic against the US, as companies like Dell, Microsoft and HP could suffer as a result. Stocks in Asia are showing fractional losses.
At 9.30am (UK time), the UK will release a raft of economic announcements. The estimate of GDP for the three months until October is expected to show 0.0% growth. On a monthly basis, industrial output, manufacturing output, and construction output are expected to be 0.2%, 0.0%, and -0.2% respectively. The goods trade balance deficit is tipped to decline to £11.65 billion.
The German ZEW economic sentiment report will be posted at 10am (UK time). The reading is anticipated to improve to 0.0% from -2.1.
EUR/USD – has largely been moving lower since mid-October and a break below 1.1000, might put the 1.0900-1.0879 area on the radar. A move to the upside might run into the resistance at 1.1179.
GBP/USD – has been in a bullish trend since early September and if the positive run continues it might target 1.3361. A pullback might find support at 1.3000.
EUR/GBP – recently fell to a level last seen in May 2017. A break below 0.8400 should pave the way for 0.8313 to be retested. A rebound in the currency pair might target the 0.8600 area.
USD/JPY – while it holds above the 50-day moving average at 108.54 it could target 110.00. A move back below the 50-day moving average might bring 107.88 into play.
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