Expectations for stimulus from the European Central Bank are still the driving force in European markets. It is still very much a data-dependant waiting game for the ECB with no set policy for sovereign purchases in place, only a vague guideline of balance sheet expansion.
Stock markets pulled back on Monday when concerns over growth Asia’s two largest economies took the shine off the best monthly jobs gains in the US since 2012 while another slide in oil prices hit the energy sector once more.
The euro initially extended losses after German industrial production expanded at a much slower rate in November but pushed higher later in the session ahead of German trade balance, French budget and Greek CPI figures expected to show the kind of deflation the ECB is hoping to avoid for he who of the Eurozone.
There hadn’t really been much of a catalyst to justify the much weaker British pound seen on Friday other than US dollar strength and as such the pair saw a strong bounce on Monday when the BRC retail sales figure released in the UK caught a boost from record Black Friday sales. Industrial production data is released Tuesday at 9.30am GMT.
European markets look set to open sharply lower on Tuesday following volatility in the Asian session that saw the single biggest one-day drop in the Chinese yuan. The US dollar has been strengthening against all global currencies and now the People’s Bank of China look set to ease monetary policy further with a possible RRR cut following the cut to interest rates.
EURUSD – The euro is still in its downwards trend but didn’t make much more progress to the downside below Thursday’s low and it seems some of the demand exhibited on that day with a large bullish intraday correction remains and may see gains extend to 1.24.
GBP/USD – The pound didn’t spend long below its broken support at 1.5590 and soon rebounded back into the middle of its prior range. The assumption is for resumption the downtrend. The break of an intraday downwards sloping trendline connecting the Dec 1 and 5 peaks may be enough to see the pair retest the Nov 27 high and open up the possibility of a double bottom reversal.
EURGBP – The euro-sterling cross failed for three days to close beyond 0.79 so may be looking at another run down to 0.78 then 0.77550.
USDJPY – The dollar-yen saw a drop-off from just shy of 122, a new 7 year high. Recent corrections have not lasted much more than 150 pips and as such price has already rebounded off the Dec 4 peak and could make another run at the high.
Equity market calls
FTSE100 is expected to open 37 points lower at 6,637
DAX is expected to open 58 points lower at 9,958
CAC 40 is expected to open 23 points lower at 4,352
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