European stock markets slipped back yesterday along with the FTSE100 despite a continued rise in oil prices that saw them move above their August peaks. A surprise draw in crude inventories has seen prices move back towards the pre Brexit peaks seen in the early part of June.
It would appear that some investor angst surrounding a possible ECB tapering of its bond buying program early next year, as well as hawkish Fed chatter contrived to push European stocks lower yesterday, along with gold prices, though after a positive finish in the US last night, we could well see a positive open today.
The pound also appears to be finding a modicum of support, despite hitting a new 31 year low against the US dollar, which has appeared to limit the upside on the FTSE100.
The bipolar nature of US markets continued yesterday after Tuesday’s declines on the back of some hawkish Fed policymaker comments.
A surprisingly decent ISM non-manufacturing survey for September, which also saw a strong employment component, has assuaged some concerns about the health of the US economy, along with a stronger oil price prompting further US dollar strength without spooking US markets, which closed higher last night on the perception the better data suggested that the US economy might be able to withstand a rate rise before the end of the year, with the probability of a hike moving up to a 63% probability.
The flip side of that equation was a slightly weaker than expected September ADP payrolls number which shifts the focus back to tomorrows non-farm payrolls number.
The pound appeared to find some support with the politics of the Conservative Party Conference now firmly in the rear view mirror, which means markets can hopefully focus on something else other than political hot air.
The diminishing prospect of another Bank of England rate cut this year has also helped, dropping to 11% for November, helped in no small part by some decent September PMI numbers this week and an admission from new MPC member Michael Saunders that the Bank of England may have underestimated the resilience of the UK economy, as it snapped back in the wake of the June vote surprise.
EURUSD – found support at the bottom end of the triangular consolidation at 1.1150 yesterday as we await the potential of the next 200 point move. A break either side of 1.1150 and 1.1290 could well trigger a sharp 200 point move in either direction.
GBPUSD – we saw another 31 year low yesterday as the pound continues to come under pressure. We could well head even lower towards the 1.2500 area, unless we manage to regain a foothold back above 1.2850. With sentiment so bearish it does remain susceptible to a short squeeze back towards the 1.3120 level.
EURGBP – overshot its 2013 peaks at 0.8815, at 0.8844 but wasn’t able to follow through suggesting that we could see a fall back through 0.8780 back towards the 0.8720 level as well as 0.8670. A sustained move through 0.8820 level has the potential to target the 0.9000 level.
USDJPY – the successful break through the 103.20 level has seen the US dollar push higher and we could now see a further push towards 104.20 and the September highs. The 102.20 area should now act as support for this move.
