European markets look set to start on the front foot today,
after another positive US finish on Friday, though London traders could well be a bit thin on the ground this morning as the south of the UK braces itself for a big Atlantic storm.
As storms go we might also see some volatility as a result of rising tensions between China and Japan over a disputed set of islands in the East China Sea with Japanese fighter jets being scrambled at the weekend in response to Chinese flights over the Okinawa islands. This rise in tensions though doesn’t appear to have concerned Asian markets at the start of this new week, with markets there also pushing higher.
As things stand we currently look set for one of the best October stock market performances in years
as we head into the end of the month, though if omens are anything to go by the last time we had a massive storm in October in 1987, the stock market dropped sharply.
While one could speculate as to whether history could repeat itself, it seems unlikely when you have the Federal Reserve sitting in the background, and it is the Fed which is likely to be the focus of attention this week.
With little in the way of economic data today the penultimate US Federal Reserve meeting of the year, isn’t likely to pose many surprises
, and while no policy changes are expected, there could well be a change in tone in comparison to the September Fed meeting in light of recent events this month on Capitol Hill and the US government shutdown.
The fact is anything other than a dovish Fed would be a major surprise
and this is likely to remain positive for stocks and negative for the US dollar, given that it will be some time before the FOMC will be able to make an accurate assessment of what the damage to the US economy has been.
With no press conference scheduled markets will look for clues from speeches later this week by Fed members, Bullard, Lacker and Kocherlakota.
Some of this week’s data may help in that regard
, particularly the October ADP employment report on Wednesday, which is expected to show a fall from the September number, as well as the October manufacturing ISM number on Friday. We also have US retail sales for September, which aren’t expected to be anything to write home about either.
Other central bank decisions this week
include the Bank of Japan and the Reserve Bank of New Zealand who are also expected to remain on hold.
Something else to look out for this week is the latest unemployment data out of Europe given the recent recovery in equity markets
and there is an expectation that we could well see some broader improvement here too, though Italian levels are expected to continue to edge higher.
– another new 2 year high at 1.3830 Friday 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 last week without undermining bullish sentiment.
– 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.
– the euro continues its resilient push higher closing around the 200 day MA at the end of last week. A move above last week’s high at 0.8555 could see a move towards the 0.8600 area. While the euro is unable to close conclusively beyond the 200 day MA 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 briefly pushed below the 200 day MA at 97.20 but once again failed to close below it, and while it continues to do so the prospect of a rebound remains. A move and close 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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