Another negative close in the US last night, the third one in a row, doesn’t look as if it will translate into a weaker open in Europe this morning despite recent economic data from both sides of the Atlantic coming in somewhat mixed yesterday.
There is the possibility that we are seeing some profit taking after the strong gains seen since late December,
and the post Fed tapering rebound, ahead of tomorrow’s potentially market moving FOMC minutes, and Friday’s latest US employment report.
Today is expected to be a fairly uneventful day data wise with German retail sales data for November, unemployment data for December, and Eurozone CPI set to provide a distraction, and none expected to surprise significantly one way or the other.
The German retail sales numbers could ignite some debate later this week
, particularly if they replicate the 0.9% decline seen in October, when US Treasury secretary Jack Lew visits Berlin
This is a particularly touchy subject for Berlin particularly in the wake of last year’s strong criticism of Germany’s economic policy, by the US Treasury, about its current account surplus and the lack of domestic demand in the German economy.
The weak nature of German retail sales has been a bit of a concern in recent months
, particularly when you see that consumer confidence has climbed steadily throughout 2013, to its highest levels since 2007 at 7.6 last month, yet retail sales have shown a net decline in the last six months of over 3%.
Given that consumer confidence is widely touted by many economists as forward looking this seems rather odd and contradictory. If German consumers are increasing in confidence, to 2007 levels, then why on earth aren’t they spending?
Expectations are for a rise of 0.5% in retail sales for November,
though given recent months that is by no means a given.
This lack of spending is even more puzzling given the low levels of German unemployment
which is set to remain steady at 6.9%
with a drop of 1k for December.
On the inflation front in Europe, given this week’s ECB rate meeting today’s latest flash Eurozone CPI numbers
are expected to be closely watched for any sign of further weakness, which seems unlikely given how robust some of the most recent economic data has been.
It was the weakness of these numbers at the beginning of November that prompted the 0.25% rate cut at the penultimate meeting of last year.
The numbers are expected to remain steady at 0.9%
, reflecting the recent improvement in some of the economic data, though producer prices are expected to remain weak at -0.1%.
In the US
the latest November trade balance is expected to come in at -$40bn, a slight improvement on the -$40.6bn seen in October.
– while above 1.3570 trend line support from the 1.2760 July 2013 lows the current uptrend in the euro remains intact. A move below the trend line support has the potential to open up further losses towards 1.3475. Only a break below the 1.3475 level would then argue for a move to the lows in November at 1.3300 and 200 day MA.
The key resistance remains at 1.3885, which is long term trend line resistance from the all-time highs at 1.6040.
– the key support for the pound lies at 1.6300 trend line support from the 1.4815 lows in July. Only a break below 1.6250 retargets a move back towards 1.6110. While above this key support level the potential for rebounds back to 1.6520, and the highs last week remains, however last week’s daily bearish engulfing candle does raise the risk of a slide back towards the 1.6000 level.
– the December lows at 0.8252 remain an obstacle to a move towards the 0.8160/70 area which is a 61.8% retracement of the entire up move from the 2012 lows at 0.7755 to the highs last year at 0.8815. While above 0.8250 we do remain susceptible to a short squeeze back to the 0.8420 area.
– the US dollar is starting to look a little soft with a break below 103.70 potentially heralding a return towards the 100.00 level. The break below Ichimoku cloud support on the four hour chart for the first time since October does seem to suggest a significant momentum slowdown.
The 105.50 area the 61.8% retracement of the entire down move from the 2007 highs at 124.20 to the all-time lows in 2011 at 75.25 remains a key obstacle to further gains.
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