he “will they, won’t they” game of stimulus continues to dominate markets. US markets softened ahead of the data on Friday night, and Japanese investors roiled exporters shares after comments from PM Abe were interpreted as too cautious.
The USD dollar weakened at the end of European trading, and then preceded to climb throughout the US session on fears that non-farm payrolls on Friday night (f/c + 165k) will stay the Fed’s hand, and bring a curtailment of bond purchases under QE3. Shares moved in the opposite direction, selling off initially before regaining some lost ground, finishing in the red.
The Asian session saw further detail of PM Abe’s “third arrow” – structural reform to increase productivity and foreign investment. Construction groups rallied but financial shares and major exporters like Toyota and Sony fell. The overall market impact is negative, as commentators suggest the reforms, while moving in the right direction, are too timid.
Gold fell below U$1,400 an ounce on dollar strength, but oil gained as inventory numbers reversed last week’s read of a potential oversupply. Importantly, copper rallied despite USD gains, showing at least a short term shift in the prevailing negative industrial sentiment.
In Europe today, PMI reads for the EC and the UK, Italy France and Germany could inform trading today. Only the UK is expected to show gains with a forecast read of 53.1, up from the previous 52.9. Reads across the continent are expected to show continuing contraction, with the zone wide index expected at 47 5.
EUR/USD is knocking on 1.3100, suggesting potential to test the resistance at 1.3210. Failure through 1.300 could bring longer term support at 1.2835 into play.
USD/JPY is weakening as markets digest PM Abe’s plan. Yen strength pushed the pair under 100, and a breach of trend support at 99.40 may see a tumble. Trading back through 100 may have a spring effect, as a resumption of the uptrend may spark speculation of a test of the highs at 103.70.
GBP/USD is currently in uptrend after recent bounces off1.5000. Heavy traffic around 1.5400 may slow any advances. Support just above 1.5200 may limit losses, with USD leads and today’s PMI and house price data potential influences.
European markets are expected to open mixed:
UK down 33
Germany up 4.5
France up 4