Asian markets have reflected the overall bearish tone taking their lead from the US close and the renewed concern
over the spreading of the euro debt crisis. The Italian bond auction yesterday was deemed a success with regard to the increased demand; however the yield of 6.29% while well down from the record levels of last week is still deemed too high.
The Spanish bond yield was also on the back foot with yields rising above 6% for the first time since August.
Its starting to transpire that the technocrat government are not a silver bullet to either Italy\'s or indeed the Eurozone\'s problems and the level of investor scepticism remains apparent.
This coupled with evidence that the ECB bond purchases were down by almost 50% last week compared to the previous week Italy\'s crisis has rocked investor confidence and it appears further set backs are being anticipated.
The main effect was a sell off in the Euro and the equity markets with the financial sector suffering the most as the demand for safe haven assets was once again the primary priority.
With this French GDP rising to 0.4% against expectation of 0.3% indicating a return to growth and Germany meeting consensus with a gain of 0.5% over Q2 amounting to 2.5% a year on year the single currency temporarily bounced off its lows.
With contractions pretty much everywhere else the flash Eurozone GDP number due at 10am this morning is expected the edge lower throwing into sharp relief the two speed economy that actually does exist within the Euro area. The ZEW economic Sentiment due at 10am has tended to fall short of expectations these days and in light of the European economic shambles to say another slide is likely would be an understatement. With sentiment the way it is one could expect increased pressure on the euro should the actual results undershoot.
In the UK, 9.30am will see the release of monthly inflation. CPI is expected to back off a touch by 0.1% towards 5.1% and the Retail Price index is due to fall back also to 5.5% at this juncture. Any numbers that come in better than expected would likely see an exaggerated sterling bounce particularly against the euro which more than enough problems.
The BOE inflation report will more than likely see a revision of longer term UK growth and could offer clues in respect of any further quantitative easing.
In the US, the latest retail sales are expected to set reduce to 0.3% while Producer prices are expected to fall by 0.1% for the first time in a year. Speeches by two Fed voting members today will also be closely watched for details on the central banks dual mandate.
EURUSD – the dollar has benefitted from the safe haven demand and the resulting sell off in euro driven the single currency its 50 day MA and we see the emergence of a bearish head and shoulders pattern once again. The well-established resistance level of 1.3850 coincides with the 21 day MA which looks set to cap any potential euro gains and above that the 1.40
The possibility for a drop back to 1.3520 has now opened up but the pair will need to break below 1.3580 and the uptrend line from the October lows to see that level. While volatility is expected the outlook remains for a longer term move towards 1.3050, which is the 61.8% retracement level of the 1.1880/1.4940 up move.
GBPUSD – Sterling has dropped back against the dollar and is consolidating around 1.59. Its 100 day MA (1.600) capping any real gains. Downside support is found at 1.5850. A convincing break of 1.6060/70 could see a retest of 1.6140. A move back below the 1.5870 area retargets the 1.5500 area on the way back towards the long term target around 1.5150.
EURGBP – the pair’s range remains in place for the most part with support at 0.8530 and resistance at 0.8650.
Further gains for the euro should now be capped 0.8720. Should the euro weaken below the key support of 0.8530 -February’s lows of 0.8450 could once again be witnessed on the way down to this year’s lows of 0.8305.
USDJPY –The support around the 77.70 which coincides with the 100 day MA is now the new resistance. With 77.00 acting as support for now, any further downside should be limited with support at 76.30 but with safe haven inflows only a move and close above this key level 77.70 could signal further US dollar gains.
Gold – the $1800 level is still a barrier for the shiny metal. The flow into the safe haven dollar has also impacted the upside. With $1755 acting as support (the 38.2% level from the September highs) it may consolidate in this range for a while. Only a move above $1800 could see a retarget of the all-time highs and even that won’t necessarily be all that straightforward. A convincing move below $1755 could see the $1700 level retested assuming that the 21 day MA is breached in the interim, The 144 Day MA is broad based support.