European markets got off to a fairly decent start this week, helped by an easing of trade tensions as well as a weaker pound which helped propel the FTSE100 to a two-month high, and above its 200-day MA, while the DAX is rubbing up against similar resistance levels just shy of its 200-day MA.
US markets on the other hand appear to be finding further upward progress difficult to sustain with the Dow slipping lower for the third daily in succession as a stronger US dollar and higher yields weighed on the upside for US investors. The S&P500 finished broadly unchanged while the Nasdaq also finished lower.
Crude oil prices continue to be a cause for concern hitting a fresh three year high above $75, despite comments from Iranian oil minister Bijan Zanganeh that there would be no need to extend the current pact of output freezes beyond this year. It is this move higher in crude oil prices, along with the rise in demand, that is helping fuel the recent rise in yields as well as the positive tone for equity markets, however if it continues too far we could start to see it act as a drag on equity markets, if prices along with yields start to move even higher.
Last week the latest German ZEW investor economic expectations index for April fell to a five year low of -8.2, reflecting concern over rising trade tensions between the EU and US, as well as recent weaker economic data since the turn of the year. This pessimism is in contrast to recent gains in the German DAX which has risen for four weeks in a row, as well as yesterday’s better than expected April flash PMI readings in both services and manufacturing.
This divergence in the data might suggest that some of the recent weakness seen in Q1 may have been weather related due to recent cold weather, while survey reports can prove to be flaky at best given how they tend to be sentiment based as opposed to evidence based.
The same could be said of today’s German IFO business climate survey which again is a sentiment indicator but nonetheless has a sample size of around 7,000 businesses across the German economy. This month’s number is expected to significantly differ from last month’s reading due to a change in methodology which now includes businesses from the services sector, which make up a great proportion of the German economy.
Under the new changes the March number has been revised down from 114.7 to 103.2, with estimates for April set to show an improvement to 104.7, however it is now likely to be much more representative of the wider German economy.
The pound underwent another disappointing day yesterday, sliding against the US dollar for the fifth day in succession and hitting its lowest levels this month. Today’s economic data is expected to show that public sector borrowing for March fell into deficit to the tune of £1.3bn after a small surplus in February.
EURUSD – continues to slide back with key support sitting between the 1.2160 and 1.2180 area. A concerted break here could complete a triple top reversal and target a move towards 1.1800. While 1.2160 holds then the current range is likely to remain intact.
GBPUSD – the break below the 1.3970 is bad news for sterling bulls and potentially opens up a retest of the lows this year at 1.3720. We need to see a recovery back above the 1.4030 area to stabilise and argue for a retest of the 1.4130 area.
EURGBP – last week’s gains could see a retest of the 0.8820 area and the 50 and 100-day MA’s, however for now we appear to be struggling at the 0.8790 area. While above the 0.8740 area this remains the most likely outcome. A fall below the 0.8740 area, opens up a move towards support at the 0.8690 area. Only a fall back below 0.8680 retargets the 0.8620 lows of earlier this week.
USDJPY – now on course to revisit the 109.20 area. Support still remains back at the 106.60 area and this month’s lows. The 105.20 area also remains a key support with a break below 105.00 opening up a move towards 103.00.
FTSE100 is expected to open 9 points higher at 7,408
DAX is expected to open 26 points higher at 12,598
CAC40 is expected to open 6 points higher at 5,444
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