US equities finished offside last night.
The Dow Jones finished firmly in the red, while the S&P 500 and NASDAQ 100 both finished narrowly offside. Amazon shares hit an all-time high, and that helped the NASDAQ 100 come within a whisker of 7500, before it finished a touch lower on the day.
The trade dispute between China and the US is still ongoing, and is likely to erupt again given that the ball is now in President Trump’s court. It is major political news, but until there is a new development, traders are may not pay too much attention to it. Relations between the US and Russia took a hit yesterday after Washington DC revealed plans to impose fresh sanctions on Russia for its alleged role in the poisoning of a former Russian spy in the UK. London-listed companies that have exposure to Russia, such as Polymetal and Evraz could come under pressure.
Sterling will be in focus this morning as the UK preliminary second-quarter GDP report will be released. On an annual basis, the consensus estimate is 1.3% and that compares with 1.5% growth in the same period in the previous year. Industrial output, manufacturing output and construction output will also be released at the same time, and economists are expecting a cooling of the growth rate across the reports. The June construction PMI report jumped to a seven month high, so today’s construction output report might tops economists’ forecasts.
There was an uptick in economic activity in the second-quarter, and that was one of the reasons the Bank of England (BoE) hiked interest rates recently. The worry about a ‘no-deal Brexit’ is weighing on sterling, and we could see a rebound in the pound should we see respectable economic updates.
The US dollar has had a good run lately, and traders will be keeping an eye on the US inflation report. The headline inflation figure is tipped to rise to 3% from 2.9% in June, and the core figure is expected to hold steady at 2.3%. The Federal Reserve’s inflation target is 2%, and some US central bankers have warned about running the economy too strong, as it could bring about ‘inflationary pressure’. Traders are predicting the Fed will hike rates in September and December.
Gold could be in for a tough time today depending on the US inflation figures. The metal has been in decline since April, and there has been a strong inverse relationship between gold and the US dollar. Should the greenback break higher, we could see gold test the $1,200 mark.
Oil had a lacklustre session yesterday following the plunge it endured on Wednesday. Concerns about US and Chinese demand prompted a wave of selling, and the fact that there wasn’t much bargain hunting yesterday, suggests that the fears about demand still persist.
EUR/USD – remains below the trend line from the June high, and while it remains below the 1.1720 area its outlook could remain negative. A break below the 1.1510 area, might bring about further losses. A move back above 1.1720, could bring 1.1850 into play.
GBP/USD – has been in a downtrend since April, and if the bearish move continues it could target 1.2800. Pullbacks might run into resistance at 1.3189 – 50-day moving average, or 1.3363.
EUR/GBP – has been pushing higher since April and if the bullish run continues it could target 0.9050. A move lower might find support at 0.8900 or 0.8844.
USD/JPY – the upward trend that began in March is still intact, and if the positive move continues it might target 112.15. Support might be found at 110.00 – the 200-day moving average.