US markets last night closed at new record highs on the back of a raft of better than expected company earnings updates, as well as more soothing words from Fed Chairman Bernanke about the prospective timeline of any tapering program.
Unfortunately the good news ended there as both Google and Microsoft missed on earnings by a country mile after the closing bell sending both stocks sharply lower in the grey market. News that the city of Detroit had filed for Chapter 9 bankruptcy added to the surprise and in some rather unfortunate timing at the same time Moody’s decided to upgrade the US’s sovereign rating outlook from “negative” to “stable”
We also saw a slide in the Nikkei and a move higher in the Japanese yen ahead of this weekend’s upper house elections in Japan. If Mr Abe wins here he can have no excuses in looking to implement the structural reforms he has pledged as part of the “third arrow” of his economic recovery strategy, dubbed Abenomics.
The sum effect of all these events is likely to see European markets open lower this morning as we head into the end of another positive week for stocks, and ahead of this weekend’s G20 meeting in Moscow.
Amongst the items on the agenda it is quite likely that the consequences of recent central bank QE chatter is likely to be high on the agenda given the recent weakness seen in emerging market currencies caused by Fed tapering talk, as well as the sharp rise in interest rates around the world.
This rise in global bond yields and capital outflow from EM currencies could well have been part of the reason why we saw the Fed Chairman soften his tone on tapering this week.
Leaders are also expected to discuss measures to tackle unemployment and the weak global economy.
The UK continues to be in focus today after yesterday’s June retail sales numbers came in as expected at 0.2%, which has reinforced the prospects of a fairly good Q2 GDP number at the end of this month. Later this morning we will also get the latest public finance data for June which is expected to show a deficit of £9.3bn, down from £10.5bn in May.
In Europe, hopes that Greek leaders might be able to persuade their guest German finance minister Schaueble to consider some form of debt haircut fell on deaf ears despite them managing to pass the latest measures to shed over 15,000 jobs over the next two years. On the economic data front German factory gate prices are expected to dip 0.1% in June.
EURUSD – finding support at 1.3065 yesterday the potential remains for a retest of the 1.3180 area. Only a move below the 1.3000 level undermines this scenario. The long shadows on the daily candles suggest buying interest on dips. A move through the 1.3230 area could well see a move to 1.3400.
Only a break below 1.2750 argues for a move towards the 1.2680 level which is 61.8% retracement of the entire up move from 1.2045 lows in July last year to the highs this year at 1.3710.
GBPUSD – the 100 day MA at 1.5265 continues to cap, however dips are somewhat shallow at the moment. A move below yesterday’s low at 1.5160 targets the 1.5080 level. The potential remains for a move towards 1.5400. Only below the 1.5030 area argues for a retest of the key double support at 1.4830. Only below 1.4780 argues for a move towards the May 2010 lows at 1.4230.
EURGBP – a bearish key day reversal earlier this week keeps the bias towards the downside but we need to break below the 0.8580 area to do so. For now any pullbacks need to stay below yesterday’s high at 0.8650. We need a break below the 0.8580 level to retarget a move back towards the 0.8520 area.
USDJPY – having managed to consolidate above 100 it would appear that the bias for a move lower towards 98.15 has shifted, however we still remain below trend line resistance from the 103.75 highs at 101.00 and as such can still move lower. Only above 101.00 changes the outlook and retargets the highs this year at 103.75 and then 105.80.
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