UK Retail sales set to come in flat
By Michael Hewson (Senior Market Analyst at CMC Markets UK)
Yesterday?s improvement in the UK unemployment numbers appears to raise more questions than answers with respect to the UK economy. How can it be that unemployment is falling while the economy is in the grip of three successive quarters of economic contraction, and it is this apparent contradiction that is causing a lot of debate?
The unemployment rate fell to 8%, with London accounting for a significant amount of the fall in the jobless numbers. This is likely to have been down to the Olympics which suggest that there is a possibility the boost could well be short-lived.
Later this morning we get to see the latest UK retail sales numbers for July and it is important to remember these have been very volatile this year, extremely positive one month and then negative the next as under pressure consumers shop in fits and starts.
The weather is bound to have played a part as it has done for most of this year with summer clothing sales likely to have taken a hit, due to the un-seasonal wet weather.
Heavy discounting by retailers may have improved the figures, but if the British Retail Consortium figures earlier this month are anything to go by, the figures could well disappoint.
June retail sales missed expectations by some way, coming in at 0.1% below expectations of 0.6%, while expectations for July vary wildly from +0.2% to -0.2%. Given that this period covers the end of Euro 2012, Wimbledon and the start of the Olympics, the numbers do have potential for a positive surprise.
In Europe the only data of note is the latest July inflation numbers for the euro zone which is expected to stay at 2.4%, though the monthly number is predicted to slip 0.5%. The main focus is likely to be on German Chancellor Angela Merkel?s trip to Canada on her first engagement after her annual holiday, where she could well get quizzed on her take on ECB President Mario Draghi?s pledge to do whatever it takes to preserve the euro.
She is also likely to have to field questions about next week?s visit by Greek President Samaras to Berlin, where one of the topics up for discussion is likely to be a two year extension of the bailout terms. Early indications about this aren?t promising with German officials insisting that there will be no new money.
In the US the latest weekly jobless claims numbers are likely to remain at the lower end of recent ranges, coming in at 365k, while particular attention will be paid to the August Philadelphia Fed survey after yesterday?s extremely disappointing Empire manufacturing number, which slid sharply to -5.85, the first negative reading since October last year.
Expectations are for a recovery from July?s -12.9 to -4, while housing starts for July are expected to slip 0.4% after June?s sharp 6.9% rise.
While jobless claims remain at the lower end and other data remains mixed the likelihood of the Fed easing further in September remains highly unlikely despite market expectations.
EURUSD ? the single currency appears to be slowly drifting towards trend line support at 1.2260 from the 1.2045 lows. On the topside the key resistance is still the 55 day MA and resistance in the 1.2430/40 area
A break of the trend line support has the potential to retarget the 1.2150 area, as well as the 1.2045 lows.
The bullish weekly candle from two weeks ago still remains valid until such time as we break below 1.2045 so caution remains the watchword. A break below 1.2240 targets these lows and then 1.1880.
The key level on a monthly close remains the 200 month MA at 1.2060, the July lows.
GBPUSD ? the 200 day MA at 1.5725 continues to cap any gains for now while the bigger resistance remains between 1.5740/80. Above 1.5780 and we could see a move to 1.5910.
A break below the trend line support at 1.5500 from the 1.5240 lows suggests a move back to 1.5240.
Only a close below 1.5240 signals a risk of a return to the July 2010 lows at 1.4950.
EURGBP ? the resistance at 0.7880 continues to cap the single currency and while below this level the support at 0.7820 remains the key barrier to a test of the downside and previous lows at 0.7755.
A break of 0.7880 is needed to retarget the 55 day MA which remains strong resistance at 0.7960, along with trend line resistance at the same level from the February highs at 0.8505.
USDJPY ? still range trading here however the US dollar looks set to test the resistance at 79.30.
The cloud support at 77.30 and the May lows at 77.60 remain a key level. As long as this holds the downside, the risk of a rebound remains quite high.
A move above the 79.30 level brings the 80.00 level back into play and then by definition the main resistance at the top of the weekly cloud at 80.45.
Equity market calls
FTSE100 is expected to open 20 points higher at 5,853
DAX is expected to open 24 points higher at 6,974
CAC40 is expected to open 17 points higher at 3,466
FTSEMib is expected to open 12 points lower at 14,645