After Wednesday’s negative close normal service was resumed last night as US markets once again closed higher boosted by a raft of positive earnings reports
, while positive reactions to results from Amazon and Microsoft saw their prices move in afterhours trading.
This doesn’t look as if it will translate into a similarly positive European open this morning, though Europe did manage to shrug off some disappointing economic data from both France and Germany yesterday.
The lower than expected readings in both the manufacturing and services PMI’s would appear to suggest that the stronger euro could well be starting to have an effect on output. A number of European companies are now citing the rising value of the currency as a drag on their profitability.
Despite the weaker readings there still remains some cautious optimism that yesterday’s numbers are just a minor setback.
Today’s German IFO numbers for October
are likely to give a better gauge of business sentiment with expectations that the business climate will edge higher f
rom 107.70 to 108.0, with a positive number having the potential to tighten the screw further and push the euro closer to the $1.4000 level.
While growth in the euro area continues to remain on the weaker side, there doesn’t appear anything holding the UK economy back, with the only concern being around how accurate the Office of National Statistics data is.
The last three months Markit PMI data across all sectors
of manufacturing, construction and services, as well as a whole host of independent CBI and BRC data, would appear to suggest that Q3 growth is likely to be extremely positive for the UK.
Earlier this month the ONS poured some cool water on that optimism
with some pretty poor manufacturing and industrial production data for August, in stark contrast to the Markit data for the same month.
This may temper the market reaction to today’s first estimate of Q3 GDP data
which is expected to come in at 0.8%, up from Q2’s 0.7% final print.
A figure below 0.8% is likely to see the pound
get sold off on initial disappointment, and raise further questions about the divergence between independent and official data, however any response needs to be tempered by the fact that the data only accounts for about 40% of the total output and subsequent revisions could well get pushed up towards 1%.
Back in the US
the latest set of delayed economic data is due out in the form of September durable goods orders
with an expectation of a rise of 2%, up from the 0.1% rise in August. The latest Michigan confidence numbers for October
are expected to slip slightly to 75 from 75.2, as consumers absorb the events of the past few weeks.
– another new 2 year high at 1.3825 yesterday as the euro edges towards trend line resistance at 1.3980 from the 1.6040 highs in 2008, which remains a key obstacle to a move above 1.4000.
For this to unfold we need to hold above the 1.3710 level and February high, though we could get a dip to 1.3650 the lows this week without undermining bullish sentiment. The key support area continues to remain at the 1.3450/60 area, with only a break below the 1.3450/60 targeting a move towards the 1.3320/30 level.
– even though we continue to struggle above 1.6220 dips continue to be well sought after. Only a move below 1.6110 could signal a deeper correction towards 1.6000 and undermine the prospect of a move towards 1.6300 and the 1.6320 trend line from the 2009 highs at 1.7045. This remains the key level with respect to further sterling gains.
– we saw a significant squeeze above the 200 day MA yesterday to 0.8555 but the euro was unable to hang onto the gains closing below the 200 day MA now at 0.8535. While below this key barrier the bias remains for a move back towards the 0.8420 area in the short term. A move back below the 0.8420 area retargets the 0.8280 level.
– the US dollar continues to cling onto the support at the 200 day MA at 97.20, and while it does so the prospect of a rebound remains. A move below the 200 day MA retargets the August lows at 95.80. The US dollar needs to regain 98.20 to retarget the 99.40 area.
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