Focus on earnings and central banks this week
By Michael Hewson (Senior Market Analyst at CMC Markets UK)
Europe?s markets look set to begin the first full week of trading in 2013 slightly on the back foot this morning, despite the higher close in US markets on Friday.
With little in the way of economic data today and markets being near multi month highs investors seem likely to take their cues from the start of Q4 earnings season this week, while retailers could well be in focus as they start to report the success or otherwise of their recent pre-Christmas trading period. UK supermarket chain WM Morrison is set to report today with Sainsbury, Marks and Spencer and Tesco later this week.
Friday?s US payrolls data didn?t exactly blow the doors off heightened market expectations, but on reflection they confirmed that while US jobs growth was not as robust as had been expected, the American labour market still remains in much better shape than the European labour market, with Eurozone unemployment expected to increase to another record high tomorrow when the latest unemployment figures for December are announced with a rise to 11.8% expected.
Also this week we have some key economic data from China and two central bank meetings from the Bank of England and the European Central Bank. Markets aren?t expecting too much in the way of any surprises from either meeting, though we could see pressure build for a rate cut in Europe if this week?s data continues to disappoint on the unemployment front, which seems likely.
The banking sector is also likely to be in focus today after the weekend news that regulators would be giving banks more time and flexibility to comply with Basel 3 LCR rules and also allowing them to count a wider range of assets to hold towards their liquidity ratios. The banks have been lobbying persistently over the past months to the effect that the strict timetable was impairing their ability to lend to the real economy, thus hampering the broader economic recovery. They also claimed that the narrow definition of assets they were allowed to hold was hampering their ability to make profits. It appears the banks have got their way in this regard.
This could well see banking stocks well supported as trading begins this morning.
EURUSD ? the euro has so far managed to hold above its long term support line from the 1.2045 lows at 1.2960, rebounding from the 1.2995 level.
The current pullback needs to get back above 1.3170 to retarget the 1.3300 area.
A move below 1.2950 targets the 100 day MA at 1.2920 and below that the 200 day MA at 1.2780.
GBPUSD ? Friday?s down move dropped through the 1.6060 level and found support at the 1.6010 level. Major trend line support comes in at 1.5945 from the 1.5270 lows, the 200 day MA at 1.5900 as well as 1.5660.
The key level remains at the 1.6310 area but it needs a break back above the 1.6180 level to achieve that.
EURGBP ? the current rebound from last week?s low at 0.8085 needs to overcome the 0.8170 level to retarget the December highs at 0.8225.
The long term trend line support at 0.8070 from the 0.7755 lows remains a key level, a break of which could well signal further losses towards the November lows at 0.7960.
USDJPY ? last week?s close above the 87.50 level and 61.8% retracement of the down move from the 2010 highs at 95 to the lows at 75.30 could well be the catalyst for the next move to the 90.00 level. Friday?s pullback managed to hold above the 87.50 level and as long as it continues to do so the uptrend looks set to continue.
Only a move below 87.40 argues for a deeper corrective move towards the 200 week MA at the 85.00 level.
Equity market calls
FTSE100 is expected to open 3 points lower at 6,087
DAX is expected to open 16 points lower at 7,760
CAC40 is expected to open 5 points lower at 3,725