Quiet start to the week as Hurricane Sandy hits the US
By Michael Hewson (Senior Market Analyst at CMC Markets UK)
Even though equity markets finished last week on a positive note with the better than expected US GDP numbers it didn?t disguise the fact that markets endured a pretty poor week on the back of concern about the outlook for future profits as a number of companies expressed concern about the economic outlook heading into Q4 and 2013.
Last week?s economic data also didn?t really offer much comfort with German data in particular continuing to show worrying weakness, with PMI?s and IFO data missing expectations, while Spanish unemployment has hit 25% and Q3 GDP was estimated at 0.4%, a figure likely to be confirmed tomorrow.
Speculation about the timing of a Spanish bailout request continue to dominate investor?s thoughts with today?s meeting in Madrid between Spanish PM Rajoy and Italian Prime Minister Monti which is expected to centre around the two countries economic circumstances. The main question is likely to be whether Monti will press Rajoy to ask for a bailout, or to hold out for as long as possible, in the knowledge that once Spain acquiesces, then attention could well turn to Italy.
Investors also continue to have one eye on events in Greece with claims, unsubstantiated so far, that Greece could be granted a two year extension on their existing bailout.
Reports continue to leak out as to the contents of the troika review into Greece?s finances with unconfirmed reports circulating that the latest report is calling for debt restructurings and/or haircuts on ECB and EU government holdings of Greek debt.
German financeminister Schaeuble has been quick to rebut any notion of such a thing while the ECB has stated that any change in the value of its holdings would be tantamount to monetary financing and thus illegal.
In the US the latest personal income and spending data for September are due out, both of which are expected to increase from their August levels rising 0.4% and 0.6% respectively, however trading is expected to be quiet with the NYSE trading floor closed due to the arrival of Hurricane Sandy. It will be a key week for Obama after last Friday?s better than expected GDP report in the lead up to next week?s US election, the hurricane is likely to have a significant effect on campaigning, as will the latest US October jobs report this coming Friday, which could make the difference between Obama retaining the Presidency or opening the door a little further for Mitt Romney. A bad number could well hand the keys to the White House to the Republicans.
EURUSD ? trend line support from the 1.2045 lows at 1.2885 held on Friday, while below that we also have the 200 day MA acting as a double support zone at 1.2835. A move below these levels indicates further weakness towards 1.2650.
While these levels hold the potential for rebounds back towards 1.3030 remains.
On the upside the main resistance remains at trend line resistance 1.3110, from the 1.4940 highs.
Only a move above 1.3240, targets 1.3495, the 50% retracement of the entire down move from 1.4940 to 1.2045.
GBPUSD ? the 1.6140/50 area remains the key resistance and barrier to a move towards 1.6285 trend line resistance from the 2011 highs at 1.6750 as well as 1.6310 the highs this year.
Pullbacks are currently finding support at 1.5910 last weeks low and 38.2% retracement of the 1.5270/1.6310 up move. There is also interim support at 1.6050.
EURGBP ? last weeks move lower found support at the 0.8000 level and 55 day MA at 0.7995. We also saw a bearish weekly candle which suggests we could see further losses.
Rallies need to overcome the 0.8070 level to reopen a move back to 0.8110 and the 200 day MA which broke last week.
USDJPY ? Friday?s bearish engulfing daily candle found support at the 200 day MA at 79.50. The failure to close above 79.80 could see a move back towards 79.20 as well as further losses towards 78.50.
The US dollar needs to hold above the 80.00 level and take out the June highs at 80.60. We also need to close above 79.80 on the week to open up a move to 81.00 which is the top of the weekly cloud.
Equity market calls
FTSE100 is expected to open 7 points lower at 5,800
DAX is expected to open 8 points lower at 7,224
CAC40 is expected to open unchanged at 3,435