German IFO expected to decline again

Yesterday’s European PMI data from the manufacturing sector may have ticked up slightly, but it also pointed to further weakness in the services sector, pointing to an even deeper contraction in Q4, across the whole of Europe, as the aggregated measure fell to its lowest level since 2009.

While EU leader’s debate and argue over a new budget plan for 2014 to 2020, which is likely to take some time and probably spill over into next year, the economic data across Europe continues to disappoint and markets are likely to focus their attention in particular on the latest German November IFO business climate survey which is expected to decline for the seventh month in a row from 100 to 99.60, and to its lowest level in nearly three years.

The final adjustment to German Q3 GDP revisions aren’t expected to elicit too much of a market reaction given that they are expected to come in in line with the previous numbers at 0.2% for the quarter.

Elsewhere in Europe, Cyprus announced that it is very close to signing a bailout deal, which could total up to €17bn, the size of its entire economic output, as the small island becomes the latest to need financial aid, due to its banks’ exposure to Greece. A few “i’s” need to be dotted and “t’s” crossed by the troika before approval is given.

With most of the US still off for the Thanksgiving break, trading in US markets is likely to be thin in a holiday shortened trading day.

EURUSD – the euro has come into touching distance of the 50 day MA and 1.2920 area where we should see some resistance. The 1.2900 level is also 50% retracement of the 1.3140/1.2660 down move. The current rebound needs to overcome the 1.2920 level to stabilise and target 1.3000.
Trend line support from the 1.2050 lows now comes in at 1.2720. .

GBPUSD – despite running up to 1.5980 yesterday we slipped back to 1.5920, but upside potential remains intact for a move towards 1.6050, while above yesterday’s low.
To push conclusively lower we would need to see a move towards and break below 1.5800 trend line support from the 1.5270 lows as well as 1.5660.

EURGBP – yesterday we broke above the 200 day MA at 0.8080 for the first time since 23rd October potentially opening up a move to 0.8115 and possibly 0.8165 the October highs.
On the downside trend line support comes in at 0.7989 from the July lows at 0.7755.

USDJPY – we got to 82.85 yesterday before slipping back. The US dollar remains on track for the March highs above 84.00, while above the 81.80 area, which was the key breakout level.
The break above the weekly cloud for the first time since April looks like the catalyst for further strong gains.
Only below the 80.60 level suggests a move back towards the November lows at 79.00.