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The FTSE100 is expected to open 12 points higher at 6,306, the DAX is expected to open 9 points higher at 7,842 and the CAC40 is expected to open 5 points higher at 3,786

European equity markets look set to continue their slow glacial push to multi month highs this morning as investors become more encouraged that the recent improvements in economic data, particularly out of Germany could well herald a change in fortunes for the beleaguered European economy.

 

A slight improvement in German consumer confidence to 5.8 from recent multi month lows suggests that the normally cautious German consumer could be starting to become more optimistic.

 

Even so another general strike in Greece is a timely reminder that for all the recent calm, problems in that country remain as difficult as ever, while Europe’s other problem child Spain was offered some encouragement yesterday by comments from Olli Rehn when he suggested that Spain could be granted some leeway on its budget in the event the growth outlook continued to deteriorate.

 

Despite these gains there continues to remain a lack of conviction about the sustainability of the current rebound, no doubt reflected by last night’s rebound in the VIX, though that could really just be about market caution ahead of some key US economic events later this week.

 

This caution looks set to be reflected in the latest US consumer confidence numbers for January which are expected to show a small decline from 65.1 to 64.00, which begs the question as to how resilient this rally could turn out to be.

 

We also have the latest FOMC rate decision tomorrow, along with US Q4 GDP along with the latest private payrolls ADP report, which is expected to show a fall from 215k to 163k jobs added in December.

 

The key note number remains the main employment report on Friday, with the latest declines in weekly jobless claims building expectations of a good number.

 

EURUSD – the 1.3485 level along with the 200 week MA now become the next key obstacles to further gains. Above 1.3500 targets 1.3835, the 61.8% retracement level of the same move. Pullbacks should find support at 1.3400, while below that we have the 1.3250 level the January lows. The long term support line from the 1.2045 lows now comes in at 1.3070 which remains the key level on the downside. .

 

GBPUSD – the pound continues to come under pressure testing 1.5680 the 61.8% retracement of the 1.5270/1.6380 up move. There is also long term trend line support at 1.5630 from the 2009 lows at 1.3500, a break of which opens up the 2 year range lows at 1.5270. The 200 day MA at 1.5910 should now act as resistance.

 

EURGBP – the pound continues to lose ground pushing beyond the 200 week MA finding resistance at0.8576, 61.8% retracement level of the down move from 0.9085 to the lows at 0.7755. We also have resistance at 0.8605 trend line resistance from the 0.9805 highs. Having acted as a top for so long the 0.8425 level should now act as support on any pullbacks. Long term trend line support at 0.8115 comes in from the 0.7755 lows.

 

USDJPY – another new high last week at 91.20 brings the US dollar close to the 94.00 level. We continue to remain extremely overbought which makes the US dollar susceptible to sharp pullback. Key support remains all the way back at the 87.50 level.

The FTSE100 is expected to open 8 points higher at 6,292, the DAX is expected to open 30 points higher at 7,888 and the CAC40 is expected to open 10 points higher at 3,788

Equity markets look set to continue their unerring move to new multi-year highs with both the DAX and S&P 500 edging ever closer to pre-crisis levels and their all-time highs set in 2007. It appears that for now investors are prepared to set aside concerns about the underlying strength of the current recovery in economic activity and continue to rotate capital into equity markets, with the VIX trading at multi year lows.

Markets appear to be taking comfort from the continued improvement in US weekly jobless claims, along with signs of recovery in German economic data. Also helping sentiment on Friday was the announcement by the ECB that 278 banks would be repaying about €137bn of LTRO liquidity from the first round of loans made available by the ECB at the end of 2011.

These repayments have been taken as a positive by markets that Europe’s banks could well be in better shape than originally thought, however given that one of the other reasons for the LTRO was to create a trickle-down effect into the European economy, the larger than expected repayment suggests that there is little or no demand for the extra liquidity, raising concerns about the strength of any recovery in economic activity outside of Germany. Furthermore the draining of this liquidity has helped push the euro to multi month highs, which is likely to heap further pressure on the more fragile peripheral economies. The apparent lack of concern from ECB policymakers with respect to this could well come back to haunt them in the coming months, especially if the current rise remains unchecked.

A reminder of the problems facing Europe’s banking system, if any were needed came in the form of weekend events at Italy’s oldest bank Monte De Paschi, currently embroiled in a derivatives scandal that could well overshadow the upcoming elections, as it threatens to drag in a number of key party political players, from the current frontrunner in the Italian polls. 

This week could well see further evidence of the underlying recovery in the US labour market with the latest ADP and non-farms payrolls data for January, along with the first indication of US Q4 GDP, which is likely to have taken a hit from Hurricane Sandy, as well as the uncertainty as a result of the recent fiscal cliff negotiations. With those tortuous negotiations still fresh in the memory attention could start to shift towards the forthcoming budget sequester where $1.2trn of spending cuts could well kick in on 1st March.

EURUSD – Friday’s break above 1.3400 has seen the euro test the 1.3485 level which is the 50% retracement of the 1.4940/1.2045 down move. Just above that we have the 200 week MA level at 1.3500. Above 1.3500 targets 1.3835, the 61.8% retracement level of the same move. Pullbacks should find support at 1.3400, while below that we have the 1.3250 level the January lows. The long term support line from the 1.2045 lows now comes in at 1.3070 which remains the key level on the downside. 

GBPUSD – last week’s break below 1.5815 now opens up the possibility of a test towards 1.5680 the 61.8% retracement of the 1.5270/1.6380 up move. There is also long term trend line support at 1.5630 from the 2009 lows at 1.3500. The 200 day MA at 1.5910 should now act as resistance. 

EURGBP – last weeks break above 0.8420 saw the euro run into resistance at the 200 week MA at 0.8540, just short of the 0.8576, 61.8% retracement level of the down move from 0.9085 to the lows at 0.7755. Having acted as a top for so long the 0.8425 level should now act as support on any pullbacks. Long term trend line support at 0.8110 comes in from the 0.7755 lows.

USDJPY – another new high last week at 91.20 brings the US dollar close to the 94.00 level. We continue to remain extremely overbought which makes the US dollar susceptible to sharp pullback. Key support remains all the way back at the 87.50 level

A suspicious march higher in the Dax this morning preceded a markedly better IFO Business Survey number from Germany, adding fuel to the recent risk asset rally that has taken equities to multi-year highs.

 

Weak UK GDP data for Q4 failed to temper enthusiasm for risk as the FTSE pushed on again, though end of week profit-taking has put a cap on gains this afternoon.

 

Enterprise Inns (ETI LN) was a notable early mover in the UK as rivals Punch Taverns (PUB LN)  announced the departure of CEO Roger Whiteside, who has swapped pints for pasties and is on his way to the bakers Greggs (GRG LN) .

 

In Germany Bayer are leading the charge higher, up almost 5% after Bank of America Merrill Lynch made the company their ‘best buy’ in Europe, citing potential profitability from their upcoming drug releases.

 

After the disappointment of Apple on Wednesday night and mixed earnings on Thursday, strong numbers from Proctor & Gamble and Honeywell pre-market as well as a big beat from Halliburton have lifted investor spirits and sustained the S&P as it hovers around the psychologically significant 1500 level last seen in 2007.

 

$/Y has moved higher again, pushing above 9100 to mark a new 2 and a half year high following the comments from Japanese officials welcoming a move to the 100 mark. The next hurdle will be technical resistance at 91.50 but up to this point the last 48 hours has been largely one-way traffic.

 

E/$ hit 11 month highs after the ECB reported that they will receive a greater number of 3 year loan repayments from banks than originally estimated.    

Sterling has failed to buck the recent trend, with E/£ up 5% from the turn of the year.  Today’s contraction in GDP saw sterling sell off, and has left the UK dangerously close to a triple-dip recession, which may still be revised in the coming months.

 

Oil is heading for the longest streak of weekly advances in nearly 4 years after optimism on global demand took both crude benchmark’s higher.  Recent German confidence figures have added to an improving picture from the US and China, with US official figures suggesting demand has increased by the most in a month last week.

 

Copper has also benefited from this stronger bullish sentiment, rising for a third week as Chinese expansion figures suggest potential increases in demand from the world’s largest copper consumer.  China currently accounts for 42% of global consumption for the metal. 

 

Precious metals dropped, reversing an early rally at the start of UK trading with both Gold and Silver down over 0.5%.  It has been a continuation of the weeks’ bearish trend, largely attributed to diminishing safe haven demand, with money instead flowing into equities, notably in the Eurozone.  The move is magnified further by the backdrop of a weaker dollar, which would usually support Gold prices

The FTSE100 is expected to open 13 points lower at 6,252, the DAX is expected to open 4 points lower at 7,744 and the CAC40 is expected to open 8 points lower at 3,744

Market optimism about Germany’s economic recovery from its Q4 blip continues to grow apace after yesterday’s better than expected January flash manufacturing and services PMI data surprised to the upside. Following as it did on the sharp rise in the ZEW survey on Tuesday, today’s IFO business climate figures for January take on an extra resonance.

 

While the ZEW is a barometer of investor and market sentiment the IFO is a much more accurate measure, given that it is a gauge of how German businesses feel about any changes in the economic outlook, with respect to hiring, investment and spending.

 

Expectations are for a rise from December’s 102.4 to 103.10, but given this weeks PMI and ZEW numbers the figure could well come in much higher. Anything below expectations would be a surprise and could puncture this week’s rally in the single currency.

 

Also today the ECB publishes the data on the amount of LTRO cash that is due to be repaid and this could well be a market mover, especially if the amount repaid is very small. This would suggest that banks are still having liquidity problems and could prompt a pullback. On the other hand a large repayment could well have the opposite effect.

 

The health of the UK economy is also set to come under the microscope this morning, with the first publication of Q4 GDP, and expectations have gradually been revised lower in light of the recent disappointing retail sales and services PMI data seen over the last few months.

 

In the last few days we’ve seen sterling long positions been given a good shake out, as the pound has dropped sharply across the board in anticipation of a poor number. Expectations are for a negative quarter of -0.1% after Q3’s Olympics enhanced 0.9%, however this is the optimistic scenario with some estimates of -0.5% being bandied about on a worst case scenario.

This in turn will ensure that the whole of 2012 will show a net contraction in the UK economy and increase speculation about further action from the Bank of England at next month’s MPC meeting.

 

With Chancellor George Osborne rejecting the option of a Plan B from the IMF, expect the pound to come under further pressure in anticipation of an imminent ratings downgrade as well as speculation about the discussion of additional measures, whether or not they ultimately get delivered.

 

EURUSD – the euro continues to range trade between 1.3400 and support at 1.3250. A break through 1.3400 has the potential to target a move beyond the 1.3500 200 week MA level towards 1.3835, the 61.8% retracement of the 1.4940/1.2045 down move.  A break below 1.3250 where we have the base suggests a test towards the long term support line from the 1.2045 lows now at 1.3060 which remains the key level on the downside.

 

GBPUSD – yesterday’s break below 1.5815 now opens up the possibility of a test towards 1.5680 the 61.8% retracement of the 1.5270/1.6380 up move. There is also long term trend line support at 1.5620 from the 2009 lows at 1.3500. The 200 day MA at 1.5910 should now act as resistance.

 

EURGBP – the break above 0.8420 sets us on course for 0.8576, the 61.8% retracement level of the down move from 0.9085 to the lows at 0.7755. Having acted as a top for so long the 0.8425 level should now act as support on any pullbacks. Long term trend line support at 0.8110 comes in from the 0.7755 lows.

 

USDJPY – break above the previous highs at 90.25, reinforces the argument for a move towards the 94.00 level. A move above 90.80 could well be the catalyst for this to unfold, however we do remain extremely overbought, making the market susceptible to sharp pullbacks towards 88.50 if we fail to take out this week’s highs.

The FTSE100 is expected to open 5 points lower at 6,193, the DAX is expected to open 8 points lower at 7,700 and the CAC40 is expected to open 4 points lower at 3,722

Yesterday’s downgrade by the IMF of their 2013 growth forecast for the euro area from 0.2% to -0.2% suggests that  they are more pessimistic about the likelihood of a pickup in economic activity in the region than German investors were earlier this week.

 

This week’s better than expected rise in the ZEW survey has raised expectations that the Europe may finally be starting to see a turnaround. The perception has certainly been helped by the more benign environment in financial markets of late.

 

While lower bond yields and successful bond auctions certainly make investors feel more comfortable they certainly don’t guarantee a recovery in economic activity.

A better indication would be if the recent evidence of a turnaround in manufacturing and services PMI data is sustained with the latest preliminary figures from Germany, France and the euro area for January.

 

Expectations are for French manufacturing and services PMI to pick up from 44.6 to 44.9 and 45.2 to 45.5 respectively. The German equivalent is expected to see a rise in manufacturing to 46.8 from 46 and for services to remain at 52. The broader euro zone measures are also expected to point to a slight improvement to 46.6 for manufacturing and 48 for services, still weak and in contraction territory.

 

If a reminder were needed of the problems facing the Spanish economy were needed the Bank of Spain provided it yesterday with an announcement that the Spanish economy contracted by 0.4% in Q4 and 1.3% for 2012 as a whole.

Today’s Q4 unemployment numbers aren’t expected to offer any encouragement either with expectations that the rate will rise to 26%, with youth unemployment above 56%, putting further pressure on non-performing loans which have continued to rise to record levels.

 

In the US the latest weekly jobless claims numbers are expected to push back higher again to 358k after last week’s surprisingly low 335k print, though that may well be revised upwards.

 

Last night’s latest Japanese trade data for December crystallised the importance of the recent weakening in the yen after it showed a record annual trade deficit for 2012, driven by fuel imports as well as lower exports. Decembers deficit came in at 641bn yen and reinforced the damage done by the recent rise in the Japanese currency done over the past few years to Japanese companies competitiveness.  

 

EURUSD – the euro continues to range trade between 1.3400 and support at 1.3250. A break through 1.3400 has the potential to target a move beyond the 1.3500 200 week MA level towards 1.3835, the 61.8% retracement of the 1.4940/1.2045 down move.  A break below 1.3250 where we have the base suggests a test towards the long term support line from the 1.2045 lows now at 1.3060 which remains the key level on the downside.

 

GBPUSD – the 50% retracement of the 1.5270/1.6380 up move at 1.5815 continues to hold for now on the downside. A break would nevertheless probably signal further losses towards 1.5680. The 200 day MA at 1.5910 should now act as resistance. The pound needs to push back through 1.6050 to retarget 1.6130.

 

EURGBP – the 0.8420 50% level continues to cap the market for now. A concerted break has the potential to target 0.8576, 61.8% retracement level of the down move from 0.9085 to the lows at 0.7755. The 0.8325 level should now act as support on any pullbacks. Long term trend line support at 0.8100 comes in from the 0.7755 lows.

 

USDJPY – yesterday’s declines could well precipitate a deeper sell-off towards 87.80 initially with a break of 87.50 targeting the 85.00 level and the 200 week MA. To mitigate this risk we need to pull back through the 89.00 area to retarget the 90.00 level.

The FTSE100 is expected to open 21 points higher at 6,200, the DAX is expected to open 18 points higher at 7,714 and the CAC40 is expected to open 11 points higher at 3,752

As the situation in Europe has continued to remain dormant and equity markets have pushed to multi year highs, markets have started to turn their attention to the precarious fiscal position of the UK, and the evidence is that they aren’t particularly happy with what they see, after yesterday’s borrowing numbers showed that the Chancellor looks set to miss his borrowing targets by some distance.

 

The pound has slumped sharply in recent days buffeted by a number of concerns including uncertainty about an in/out referendum on Europe, which Prime Minister David Cameron will pledge to take place in 2017 in a speech this morning, as well as disappointing economic data and the possibility that the Bank of England could well opt for more money printing.

 

It has been suggested that David Cameron’s decision to pledge a vote on EU membership could well unsettle markets; however it is becoming abundantly clear that the current status quo is also creating just as much uncertainty. Whether this is the right approach only time will tell, but it is sure to attract a firestorm of debate and criticism on both sides of the political divide, in the UK as well as Europe.

 

As for last night’s speech by Bank of England governor Mervyn King the prospect of more asset purchases was not ruled out when he stated that the bank remained ready to provide “more QE stimulus, if needed”.  He introduced a caveat to those remarks warning about the risk of currency wars and not sticking to the inflation target.

 

As an exercise in keeping markets guessing the governors speech appears to have worked quite well in that it keeps all possible policy options on the table, including a possible review of the current monetary policy framework.

 

With the UK economy continuing to struggle and the Chancellor struggling to bring down government borrowing, the change in emphasis raises the question as to whether political pressure is being brought to bear with respect to policy settings.

 

The governor went on to suggest that the government implement supply side reforms in order to help rebalance the economy, stating that monetary policy was no panacea to the ills of the economy.

 

This morning’s publication of the latest MPC minutes should show if there is any great shift with respect to the introduction of more QE or whether policymakers are content for the funding for lending scheme to continue to do the heavy lifting.

 

There is certainly evidence that it has been much more effective than the £325bn of QE done so far.

 

The latest unemployment figures are also due to be published with the latest ILO numbers expected to remain unchanged for the three months to November at 7.8%. The change in jobless claims for December is expected to show a rise 0.5K.

 

The squeeze on average earnings looks set to continue as well with a decline from 1.8% to 1.6% for the three months to November. With inflation starting to edge back towards the 3% level the squeeze on consumer’s wallets looks set to continue.

 

EURUSD – the euro continues to range trade between 1.3400 and support at 1.3250. A break through 1.3400 has the potential to target a move beyond the 1.3500 200 week MA level towards 1.3835, the 61.8% retracement of the 1.4940/1.2045 down move. A break below 1.3250 where we have the base suggests a test towards the long term support line from the 1.2045 lows now at 1.3045 which remains the key level on the downside.

 

GBPUSD – the 50% retracement of the 1.5270/1.6380 up move at 1.5815 has so far held on the downside. A break would nevertheless probably signal further losses towards 1.5680. The 200 day MA at 1.5910 should now act as resistance. The pound needs to push back through 1.6050 to retarget 1.6130.

 

EURGBP – we flicked through the 0.8420 50% level but have been unable to close above it thus far. A concerted break has the potential to target 0.8576, 61.8% retracement level of the down move from 0.9085 to the lows at 0.7755. The 0.8325 level should now act as support on any pullbacks. Long term trend line support at 0.8100 comes in from the 0.7755 lows.

 

USDJPY – yesterday’s declines could well precipitate a deeper sell-off towards 87.80 initially with a break of 87.50 targeting the 85.00 level and the 200 week MA. To mitigate this risk we need to pull back through the 89.00 area to retarget the 90.00 level.

The FTSE100 is expected to open unchanged at 6,181, the DAX is expected to open 7 points lower at 7,742 and the CAC40 is expected to open 3 points lower at 3,760

After a subdued European session yesterday saw modest gains investors will be turning their attention back to the state of the German economy, after last week’s disappointing annualised GDP numbers.

 

While we saw last week that the German economy probably contracted sharply in Q4, yesterday’s comments from Bundesbank chief Jens Weidmann appeared to suggest that a recovery would take place in Q1. He gave no indication of suggesting that the current growth forecast of 0.4% could be revised up though.

 

Today’s January German ZEW survey is likely to give clues as to investor sentiment, however it would be a mistake to place too much stock in it given it is largely a reflection of market trading conditions which have been relatively benign of late. It would therefore not be too much of a surprise to see the economic sentiment index rise from December’s 6.9, with expectations of a rise to 12.2.

 

The more benign environment in Europe has seen one of last year’s relative safe havens, the UK come under more scrutiny with respect to its fiscal affairs, and given the recent sharp declines in the pound in the last few days today’s public finance numbers for December aren’t expected to paint a pretty picture.

 

With most of the economic data from December so far painting a picture of contraction for Q4, the expectation is that, while we could see an improvement on the November numbers, Decembers borrowing is expected to come in at £13bn, above last year’s level and cause the Chancellor to fall further behind his borrowing target for the current tax year.

 

As expected the Bank of Japan moved to a policy of open ended monetary easing and adopted a 2% inflation target, double its existing target. The Bank said it would start its program from January 2014 after the current program ends and would look at buying short term government debt to the tune of $146bn a month. This delay in implementation could see some initial profit taking in yen short positions after the declines of recent weeks, but in the long termer is unlikely to change the direction of travel of a weaker yen.

 

The latest Eurogroup meeting continues in Brussels after the appointment of Dutch finance minister Dijesselbloem to replace Juncker. Finance ministers are also said to have approved the latest aid instalments to Greece in a seal of approval to the current progress in the beleaguered country, and are also likely to back the framework for the implementation of some form of financial transaction tax.

 

EURUSD – the single currency appears to be forming a potential double top formation at the 1.3400 level. Only a move towards the 1.3500 level negates this scenario, a break of which targets 1.3835, the 61.8% retracement of the 1.4940/1.2045 down move.  A break below 1.3250 where we have the base suggests a test towards the long term support line from the 1.2045 lows now at 1.3035 which remains the key level on the downside.

 

GBPUSD – even though we pushed below the November lows we managed to hold above the 50% retracement of the 1.5270/1.6380 up move at 1.5815. A break would nevertheless probably signal further losses towards 1.5680. The 200 day MA at 1.5910 should now act as resistance. The pound needs to push back through 1.6050 to retarget 1.6130.

 

EURGBP – the 0.8420 50% level has contained the upside so far, with a break targeting the 0.8576 61.8% retracement level of the down move from 0.9085 to the lows at 0.7755. The 0.8325 level should now act as support on any pullbacks. Long term trend line support at 0.8100 comes in from the 0.7755 lows.

 

USDJPY – the US dollar slipped back in a classic sell the news scenario after the decision by the Bank of Japan this morning. While we may see some initial weakness in the US dollar, due to the delay in implementation of the new policy the overall scenario remains for a move higher beyond 90.30 towards 94.00. Key support now lies at Thursday’s low at 87.80, with a break below 87.50 targeting 85.00. The long term target stays at the 94.00 level, ahead of tomorrow’s BoJ meeting.

The FTSE100 is expected to open 29 points higher at 6,183, the DAX is expected to open 20 points higher at 7,722 and the CAC40 is expected to open 9 points higher at 3,751

We could well see a quiet start to this week given that the US have Martin Luther King day today, with market attention likely to be focussed on Japan and the UK this week, given the sharp falls seen in both currencies in the last week or so ahead of some key economic events this week. European markets look set to start the week on the front foot after Friday’s strong US finish, shrugging off a defeat for Angela Merkel in state elections at the weekend.

 

The recent sharp fall in the yen has helped alleviate some of the recent pressure on Japanese exporters who have struggled to remain competitive in the wake of a significant rise in the currency against the US dollar in the last 6 years.

 

In 2007 the US dollar was trading at around 120.00 against the yen, and in that time a combination of interest rate cuts and massive QE from the Fed sent the yen at one stage to new all-time highs of 75.30, a rise of over 35%.

 

Since the election of the new Japanese PM Shinzo Abe, who pledged to be much more interventionist in trying to drag the Japanese economy out of its deflationary funk by pushing the Bank of Japan to be more aggressive, the yen has dropped sharply, in anticipation of a significant change in tack at this week’s Bank of Japan monthly meeting.

 

This has caused some squealing and hand wringing amongst some US carmakers who claim that the Japanese are manipulating their currency in order to regain some of their lost competitiveness, which seems a bit rich given that the Federal Reserve has been doing exactly that for the last few years. It really can’t be any surprise if other countries eventually follow suit.

 

Expectations are for another boost to the BOJ’s asset buying program, by about 10 trillion yen, as well as a possible undertaking between the bank and the government to look at an inflation target for monetary policy. Anything less could well see the recent yen weakness come to a shuddering halt.

 

It is also a big week for the pound after last week’s sharp declines as investors start to rotate capital out of the relative haven that has been the UK, and back into Europe. Concerns about the future of the UK’s role in Europe alongside some pretty ropey economic data last week has seen the pound drop below its long term 200 day MA against the US dollar.

 

With public finances and Q4 GDP data out later this week expected to point to continued stagnation at best there is a building expectation that the Bank of England may well feel compelled to step on the gas with more QE. While this seems unlikely given the recent inflation numbers, this week’s MPC minutes could be somewhat more dovish in light of recent data weakness.

 

We also have a two day Eurogroup finance ministers meeting starting today, where discussions are likely to continue with respect to the Cyprus bailout, which is proving a lot trickier to agree than expected.

The subject of bank recapitalisations is also likely to come up, particularly from a legacy point of view, with countries like Spain and Ireland arguing that the cost of them not be added to state debt, something that Germany and Finland are opposed to until a fully-fledged Europe wide banking regulator is in place.

 

Ministers are also likely to discuss the likely successor to Jean Claude Juncker, with the early favourite the new Dutch Finance Minister.

 

EURUSD – the single currency appears to be forming a potential double top formation at the 1.3400 level. Only a move towards the 1.3500 level negates this scenario, a break of which targets 1.3835, the 61.8% retracement of the 1.4940/1.2045 down move.  A break below 1.3250 where we have the base suggests a test towards the long term support line from the 1.2045 lows now at 1.3035 which remains the key level on the downside.

 

GBPUSD – last week’s break below the 200 day MA at 1.5910 could well see further losses start to unwind if we break below the November lows at 1.5825. This area is also a 50% retracement of the 1.5270/1.6380 up move. A break here targets 1.5680. The pound needs to push back through 1.6050 to retarget 1.6130.

 

EURGBP – the 0.8420 level remains a key resistance given that it is 50% retracement of the down move from 0.9085 to the lows at 0.7755. The 0.8325 level should now act as support on any pullbacks. Long term trend line support at 0.8100 comes in from the 0.7755 lows.

 

USDJPY – another new high, this time at 90.25 saw the yen push back from 90.35, 76.4% of 95.00/75.30 move. Key support now lies at Thursday’s low at 87.80, with a break below 87.50 targeting 85.00. The long term target stays at the 94.00 level, ahead of tomorrow’s BoJ meeting. With momentum continuing to look stretched be prepared for a sell the fact response to any decision tomorrow

After yesterday’s positive US housing and jobs data saw the S&P500 close at another five year high investors appear to be shrugging off concerns about America’s political dysfunctionality and appear to be happy to focus on the underlying economy for now, which appears to be ticking over quite nicely, albeit patchily.

 

This afternoon’s University of Michigan confidence number could take the edge off further upside ahead of the long weekend in the US if as expected it slips back due to the brinksmanship of the fiscal cliff shenanigans at the end of last year. Analysts appear to be dismissing this possibility with predications of a rise to 75 from the previous 72.9, but don’t be surprised if it falls short.

 

This morning’s Chinese data is unlikely to undermine the underlying positive investment tone coming in better than expected across the board, though early indications do suggest that Europe’s markets may struggle to push drastically higher given their proximity to multi year highs .

 

Starting off with the Q4 GDP numbers we saw a better than expected rise from 7.4% in Q3 to 7.9%, while industrial production for December came in at 10.3%, up from 10.1% and better than the 10.2% expected.

 

Retail sales also came in better which is particularly significant given that they have become a much more important number now given the recession in Europe, and China’s problems with Japan.
 

Given these factors, China will have to rely much less on its surplus in trade to Europe and other countries for GDP growth, this fall off in demand will need to be offset domestically by demand at home, otherwise we could see the GDP numbers in subsequent quarters start to slip back again. With that in mind if China is to continue to grow at its current pace these numbers need to continue to rise to replace this drop in overseas demand and this morning’s December number also appears to be going in the right direction rising from 14.9% to 15.2%, also better than the expected 15.1%.

 

The past two weeks have seen both the good and bad on the UK High Street as retailers digest their numbers from the pre-Christmas trading period with some household names having to call time and go into administration, while other retailers have beaten expectations and performed much better than expected.

 

As such the latest December retail sales numbers will be particularly important as they could well give clues as to how well the UK economy performed when the final Q4 GDP numbers come together. While next week’s initial GDP numbers will give an early indication they won’t be that reflective of the final number.

 

The latest retail sales numbers are particularly important given how poor this particular quarter has been so far with a net decline so far of -0.8% for October and November. No-one is expecting December’s numbers to reverse that decline entirely; however there is a hope that a rise of 0.3% could well see the annualised number stay at 1%, which for an economy that is flat lining isn’t too shabby.

 

EURUSD – the 1.3400 level continues to cap the upside where we have the 100 day MA. The key level remains at the 1.3500 level a break of which targets 1.3835, the 61.8% retracement of the 1.4940/1.2045 down move. a failure to break 1.3400 suggests further consolidation back towards 1.3250. The long term support line from the 1.2045 lows now at 1.3035 remains the key level on the downside.

 

GBPUSD – the pound continues to look weak pushing further below the 1.6000 level yesterday as it pushes nearer to the 200 day MA at 1.5910. This remains the key level though we’ve yet to close below the major trend line support now at 1.5970 from the 1.5270 lows. The pound needs to push back through 1.6050 to retarget 1.6130. The key resistance remains at the 1.6180 level, a break of which retargets the resistance at 1.6310.

 

EURGBP – the break above 0.8325 skewered the lower euro scenario pushing the single currency to 10 month highs against the pound as we look to close in the 0.8420 level, which is a 50% retracement of the down move from 0.9085 to the lows at 0.7755. The 0.8325 level should now act as support on any pullbacks. Long term trend line support at 0.8100 comes in from the 0.7755 lows.

 

USDJPY – another new high, this time at 90.15, as the yen continues to weaken, closing in on 90.35, 76.4% of 95.00/75.30 move. Key support now lies at Thursday’s low at 87.80, with a break below 87.50 targeting 85.00. The long term target stays at the 94.00 level; however current momentum continues to look rather stretched.

The FTSE100 is expected to open 12 points lower at 6,092, the DAX is expected to open 10 points lower at 7,681 and the CAC40 is expected to open 7 points lower at 3,701

The gains of recent weeks are starting to lose a little traction and it’s not too hard to see why when looking at the disappointing macro outlook, and renewed concerns about European growth prospects.

 

Greece is back in the spotlight after receiving its latest bailout tranche from the IMF, as concerns rise again about the likelihood of a third restructuring after Stournaras comments the other day.

 

It didn’t take long for Eurogroup chief Jean Claude Juncker’s concerns about a higher euro to be dismissed by other European policymakers, the most notable of which was ECB member Ewald Nowotny who suggested it was “not a matter of major concern”, while outgoing Italian Prime Minister Mario Monti was declaring the crisis over, which seems a little premature given his rather indifferent track record when it comes to making predictions. It was about twelve months ago he was declaring the same thing with the LTRO’s and we all know what happened next.

 

Given that we saw Germany revise its growth forecast for 2013 down to 0.4% yesterday, in line with the Bundesbank, the current environment doesn’t, appear to be giving European policymakers too many concerns, despite the bleak outlook for growth across all of the Eurozone for this year.

I would expect that to change if the single currency continues to rise, and growth and unemployment numbers in Italy and Spain continue to go in the wrong direction.

 

The publication of this month’s ECB monthly report is expected to reflect the more stable economic environment referred to by ECB President Draghi at his press conference earlier this month, when he referred to “positive contagion,” though he did remain downbeat on the economic outlook.

 

The relative calm so far this year with respect to European markets has seen bond yields for Italy and Spain come down sharply over the past few weeks, giving both governments a much more benign environment as they look to raise as much money as they can before markets start getting nervous again.

 

There was a time when Spanish bond auctions were the equivalent of a trip to the dentist for the Spanish government, however given the recent more benign environment, today’s sale of €4.5bn of 2015, 2018 and 2041 bonds shouldn’t present too many problems, if the auctions so far this year are any guide.

 

Last night’s US Fed Beige Book of economic conditions painted a picture of uncertainty in December with concerns about political grandstanding holding back companies from making business decisions until there is more certainty with respect to the fiscal cliff decision. Areas of concern include manufacturing with declines in activity seen in a quarter of the regions. 

 

There were more bright spots than dark ones with housing continuing to show resilience while the energy sector was also positive. The latest housing starts data for December, due later today is expected to show a 3.3% rise for December.

 

Employment remained a concern with little evidence of a marked improvement while today’s weekly jobless claims are set to come in at a slightly lower level to last week at 365k.
 

After this week’s disappointing Empire manufacturing survey saw a negative figure for the second month in a row, there is a concern that the January Philadelphia Fed survey could be similarly disappointing. Expectations are for a rebound from 4.6 to 6, however analysts were similarly optimistic about this week’s Empire state survey and turned out to be wrong.

 

EURUSD – finding support at the 1.3250 level we could well see a rebound back through 1.3330 towards the 1.3400 highs in the medium term. The key level remains at the 1.3500 level a break of which targets 1.3835, the 61.8% retracement of the 1.4940/1.2045 down move. Below 1.3250 targets 1.3170. The long term support line from the 1.2045 lows now at 1.3025 remains the key level on the downside.

 

GBPUSD – yesterday’s dip through 1.6000 saw the pound find support at the major trend line support now at 1.5970 from the 1.5270 lows. A break below here could well signal further losses towards the 200 day MA at 1.5900. The key resistance remains at the 1.6180 level a break of which retargets the resistance at 1.6310.

 

EURGBP – yesterday’s pull back failed just below this week’s high at 0.8325, thus keeping the prospect of a pull back toward 0.8225, on a break below 0.8270 on the cards. We need to remember this week’s bearish engulfing day and tweezers top on the daily charts. Long term trend line support at 0.8100 comes in from the 0.7755 lows. This week high at 0.8325 is now resistance for a move towards the 0.8420 level, which is a 50% retracement of the down move from 0.9085 to the lows at 0.7755.

 

USDJPY – yesterday’s fall saw the US dollar rebound from the 87.80 level just shy of the 87.50 support. The long term target stays at the 94.00 level; however current momentum continues to look rather stretched, with a fall through 87.50 potentially seeing 86.75. We could well see some sideways price action between 85 and 90 over the next few days and weeks.