Global equities took a tumble yesterday, and it originated in Japan.
The sell-off that started in Asia 24 hour hours ago sent shockwaves around the world. European equity markets endured a severe sell-off, while the US markets finished lower too – they didn’t lose of much ground. The major rally that stock markets have been in lately managed to shrug-off the uncertainty surrounding North Korea and Catalonia. Traders were wondering what would derail this rally, and they were clearly on edge, so when the Japanese market spiralled out of control – the exodus was sparked.
The move lower yesterday must be put in context with the surge in stock markets in the preceding months. The additional monetary easing by Shinzo Abe, the Japanese Prime Minister, and the extension of the bond buying scheme by the European Central Bank produced multi-year highs, or all-time highs in some equity benchmarks so profit taking is hardly a surprise.
WTI and Brent Crude oil was pushed higher with the talk that Saudi Arabia is going to trim exports in December. The oil producing nation has been in the news a lot recently. A clampdown in corruption and souring relations with Iran has given traders case for concern about future supply levels. The OPEC meeting at the end of the month will be closely watched, and the Saudi’s are hinting at extending the oil production cut, so the bullish move could last.
The pound will be in play this morning as the UK will release the latest industrial output, manufacturing output and trade balance figures at 9.30am (UK time). The solid service figures from the UK last week backed up the argument the Bank of England (BoE) were right to raise interest rates at the latest meeting.
The BoE were dovish in their outlook, and traders aren’t factoring in another rate hike until well into 2018. With the bar set so low, a string of robust economic indicators from the UK could greatly alter the perception about when the UK central bank might hike again. Next week, the UK CPI and average earning figures could add some much needed volatility to the pound.
EUR/USD – has been in decline for the past two months, and the next level of support might be found at 1.1479. Rallies may encounter resistance at the 100-day moving average at 1.1720. Beyond 1.1720, the next resistance could be found at the 50-day moving average at 1.1800.
GBP/USD – is still in its upward trend and while it is above the 1.3000 mark, the outlook may remain positive. Rallies may incur resistance at 1.3335. A break below 1.3000 could send it to 1.2900.
EUR/GBP – is edging towards the 50-day moving average at 0.8905, and if that level is cleared it could target 0.9000. Moves lower could find support at the 200-day moving average at 0.8768 or 0.8733.
USD/JPY – has been pushing higher since early September, and 114.73 could be the next level to watch. A break above 114.73, might see the market target 115.62 and support may come into play at 113.00. The next support level below that could be the 200-day moving average at 111.75.