We could well see Europe’s markets get off to a rather slow and negative start this morning after last week’s schizophrenic performance on stock markets saw the worst weekly performance for US stocks this year, the FTSE posting its second weekly decline in succession and the French CAC40 closing up for the eight successive week in a row.
It would appear that while last week’s slightly better than expected European economic data is helping to support European markets, it would appear that US investors appear to have made up their minds that some form of Fed tapering will begin next month and the only unknown is likely to be how much the taper will be.
With this in mind this week’s focus for markets is once again likely to be on events in the US and the release of the latest FOMC minutes on Wednesday as well as the start of the Jackson Hole annual symposium of central bankers on Thursday.
In previous years this event has been a keenly watched event by markets for clues as to central bank policy, however on this occasion it is unlikely it will offer up much in the way of surprises given that neither the Fed Chairman Ben Bernanke, the head of the European Central Bank, Mario Draghi or the Bank of England’s Mark Carney, will be there.
Whether the latest Fed minutes will offer any further clues regarding a September taper is doubtful given recent chatter from various FOMC members, about the strength or otherwise of recent data, but it does give the markets something else to obsess about.
Also worth keeping an eye on this week in light of last week’s better growth numbers out of France and Germany is the latest flash manufacturing and services PMI’s for August from both countries on Thursday.
Was last week’s better than expected French number a “flash in the pan” or something more meaningful?
Certainly expectations surrounding Germany’s numbers appear more positive, however the France numbers, while again showing some improvement, point to stagnation at best, implying that perhaps last week’s French Q2 GDP growth number may not be that sustainable.
The week is rounded off on Friday with the second iteration of UK Q2 GDP which many analysts expected to be confirmed at 0.6%. There is potential for an upside surprise though given recent upward revisions to manufacturing and construction data for June, and it would not be altogether be too surprising to see a 0.7% print.
EURUSD – the euro continues to struggle below the 200 week MA at 1.3400 and while below here the downtrend bias remains. A move above this key level could well see a move back to the 1.3710 level and the high this year. To open up the downside we need to break below the 1.3150 area and the low four weeks ago at 1.3135 to achieve this. A break below the 200 day MA at 1.3115 has the potential to reopen a move back below the 1.3000 area.
GBPUSD – the cable finally managed to overcome the 200 day MA and the downtrend line resistance above 1.5530 last week, and now looks set to make an assault on the 1.5750 area, the 200 week MA and June highs. The 200 day MA should now act as support at 1.5520, while below that the 1.5410 area also remains important given it is also the low this week. Only a move below the 1.5410 area targets trend line support from the 1.4810 lows at 1.5260, with support also at the 50 and 100 day MA around the 1.5330 area.
EURGBP – having broken below trend line support at 0.8535 from the May lows at 0.8405, we look set to now test the trend line support at 0.8490 from the 2012 lows at 0.7705. This marks the key level for the primary uptrend. A break of this trend line targets a return to the May lows at 0.8405. We should now see a barrier around the 0.8580/90 area.
USDJPY – having failed at the cloud resistance between 98.60 and 98.80 last week the US dollar fell back sharply. This remains the barrier to a move back to 99.55 trend line resistance from the May highs at 103.75. The triangular consolidation continues to unfold and we could well see a return to the base of the consolidation at the 95.60 trend line from the February lows at 91.05.
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