European markets look set for a rebound early this morning
after another record US close and some dovish testimony from Fed Chair elect Janet Yellen, in prepared remarks to the Senate Banking Committee last night.
Her comments that “unemployment… is still too high, reflecting a labour market and economy performing far short of their potential”
would appear to suggest that the Fed remains some way from looking at a December taper. This perception is reinforced when linked to her comments on inflation which “has been running below the Federal Reserve's goal of 2% and is expected to continue to do so for some time.”
Market reaction unsurprisingly has been to see some weakness in the US dollar
and a degree of firmness in equity markets, while US bond yields have slipped back.
This positive European tone is likely to be tested early on with the publication of preliminary Q3 GDP numbers for France, Germany, Italy and the wider euro area
We’ve heard a lot of chatter in recent weeks from European politicians that the euro area is on the road to recovery
after some better than expected GDP numbers for Q2.
This belief will be tested today particularly in the context that the recovery may well be losing traction, particularly if the early GDP indications point to a significant slackening off in the pace of economic expansion.
Preliminary French Q3 GDP
is expected to slow from 0.5% in Q2 to a mere 0.1%, which is likely to be a particular concern given yesterday’s comments from the OECD about the problems facing the French eco
nomy due to the slow or non-existent pace of economic reform. The OECD outlined a laundry list of reforms that needed to be pushed through for the economy to regain competitiveness.
A weak number today will reinforce calls for these reforms to happen and heap further pressure on the beleaguered French President, who remains hemmed in by vested interests from both sides of the political divide.
Soon after we get preliminary Q3 numbers for Germany
, and even here expectations are for a slow down to a 0.3% expansion from 0.7% in Q2. The German growth story is particularly important given recent criticism from the US treasury about its economic model, and the in-depth review by Brussels into the size of its current account surplus and low unit labour costs.
The numbers are rounded off by Italian Q3 GDP
which is expected to remain negative to the tune of -0.2%, a slight improvement on Q2’s -0.3%. Rolled up together these numbers are expected to combine into a flash Eurozone Q3 GDP number of 0.2%, down slightly from Q2’s 0.3%.
In the UK,
the unemployment rate has continued to fall outside of Bank of England expectations, to the point that they have had to revise their expectations as to when we could see unemployment move closer to the 7% threshold. Yesterday’s surprise fall of 41.7k in October jobless claims along with the September revision to 44.7k
has carried on the trend of double digit falls in the last few months and the ILO month on month fall to 7.1% in October has raised expectations that we could see a further fall from the 7.6% ILO number reported yesterday, by year end.
Despite the Bank of England raising its the growth forecasts the UK consumer could well be a “fly in the ointment” particularly with average earnings lagging inflation. Today’s October retail sales numbers could well reflect this caution with expectations of a sharp fall from the 0.7% in September to -0.1%
. This paring back in retail sales, if it happens, is likely to be as result of consumers retrenching ahead of Christmas and some well publicised energy price hikes that kick in this month.
– the current rally appears to be gaining traction above our resistance at the 1.3450/60 level which brings with it the risk of a move above 1.3500 and the 50 day MA towards 1.3620. The outlook is now starting to become a little uncertain but as long as we stay below 1.3620 then a move to 1.3000 remains possible in line with the bearish engulfing week at the end of October.
– the broader channel of price action with support at the 1.5880/90 area continues to hold despite this week’s brief drop to 1.5855. Yesterday’s rally stopped shy of the 1.6110 level resistance that we need to break to mitigate the downside bias A sustained break below 1.5900 has the potential to target a move towards 1.5750.
– the chop in this cross continues to keep traders on their toes after yesterday’s failure above 0.8450 we slipped back and have fallen back below the 0.8420 area and have found support at 0.8370. While below the long term trend line resistance at 0.8540 from the August highs at 0.8770, the risk remains for a move back to 0.8330, while resistance remains at the highs yesterday at 0.8465, with resistance also at 0.8520.
– this week’s failure to overcome the 100 level would seem to suggest the 100 level remains a significant barrier, and with the dark cloud cover yesterday we could see a drift lower. If the US dollar breaks below the 99.20 level we could see a deeper fall towards 98.50. The next key resistance remains at the September highs at 100.60.
Support remains just below the 200 day MA at 97.80 at 97.20 trend line support from the 25th Feb lows.
CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.