In a holiday-shortened US session ahead of the 4 July holiday, US equity markets finished lower on the day as trade concerns kept investors cautious.
Sharp moves in the Chinese currency prompted speculation that Chinese authorities were manipulating the rate in order to offset some of the worst effects of US tariffs, an assertion that was denied by officials at the PBOC and prompted a sharp move higher in trading yesterday.
In Europe it was a slightly different story as we saw modest gains in the aftermath of the political deal carved out in Germany between the governing coalition of the CDU and CSU over migrant centres on the Austrian border. Despite the optimism, the deal has raised serious questions among those in the SPD who are also in the coalition over whether they can support it, so it isn’t actually fait accompli that it will get through German parliament. Against this backdrop, European markets look set to open slightly lower in what could well be a quieter session than usual with the US out for Independence Day.
On the data front, having seen the latest EU manufacturing PMIs come in a little bit weaker with France in particular underperforming, it is the turn of the services sector today where they have been some signs of a recovery in some early flash numbers a week or so ago.
In May we saw a sharp drop in the French numbers from a strong April number, however the latest flash number showed a recovery to 56.4, from 54.3. This is expected to be confirmed later this morning, while in Germany we can also expect to see a pick up from 52.1 to 53.9. In Spain and Italy, we are also expecting to see 56.3 and 53.3 respectively, both fairly decent numbers.
In the UK yesterday’s construction PMI showed a much better than expected performance in June, coming in at 53.1, a seven-month high, well above the 52.5 that was expected with a strong showing in both housebuilding as well as commercial property. It has also transpired that the poor performance that we saw in Q1 didn’t turn out anywhere near as bad as first feared given subsequent revisions from the Office for National Statistics in some recent updates to official data.
Today’s services sector data is also expected to put in a strong showing building on the strong April and May rebounds, which should augur for a strong performance in Q2 GDP data when the first estimate comes in at the end of this month. The continued hot weather as well as England getting through the early rounds of the World Cup should see feel good effect trickle down into the numbers, and after last nights nail biting penalty shootout, against Colombia this should ripple out a little bit into this month as well. Expectations are for a reading fairly similar to May’s rebound to 54.
EURUSD – Friday’s rebound failed to move beyond the highs at 1.1720 and as such we remain range bound, though we now have support at the 1.1620 level. A move back below the 1.1600 area opens up a retest of the May lows at 1.1510/20. A break below 1.1500 has the potential to open up a move towards the 1.1360 level.
GBPUSD – the rebound on Friday could well see a move higher given it had to the look of a bullish reversal, after last week’s low at 1.3050. The lack of follow through on the downside below 1.3100 makes the pound susceptible to short squeeze. The next resistance comes in at the 1.3220 area with a break targeting 1.3340.
EURGBP – despite moving beyond the 200-day MA at 0.8830 and almost touching the 0.8900 area, we closed well short of it. If we fall back below 0.8820 then we could well drift back towards the 0.8780 area, with broader support at 0.8700.
USDJPY – moved back above the 110.00 area last week which brings the recent highs at 111.00 back into focus. A move through 111.00 targets 112.00. Support now comes in at the 109.70 and 109.20 area.
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