Eurozone unemployment set to increase again
By Michael Hewson (Senior Market Analyst at CMC Markets UK)
In amongst all the expectation of the last few days with respect to this week?s ECB meeting, investors appear to be overlooking one very important factor. Irrespective of what happens on Thursday and whether Mario Draghi delivers or not, the economic data out of Europe is nothing short of woeful.
Yesterday saw Spain confirm its economy contracted 0.4% in Q2, and combined with record unemployment of nearly 25% and the recent confirmation of ?65bn worth of new budget cuts, it is hard to see how the growth situation will improve anytime soon.
Today?s economic data is going to be no less comforting for EU leaders with the release of key unemployment data from Germany, Italy and the Eurozone. While Germany?s unemployment problem continues to be an outlier to the rest of Europe, remaining well below the European average, there are concerns it could start to edge up from its current 6.8%, as economic conditions worsen.
Italian unemployment for June is expected to rise from 10.1% to 10.3%, while Eurozone unemployment as a whole is also expected to rise to another record high of 11.2% from 11.1%.
Also due out is German retail sales for June and after a disappointing May number there is an expectation of a June bounce back with a rise of 0.5% after a 0.3% decline the month before.
The year on year numbers have been dire the past two months, with a 3.8% decline in April, and a 1.1% decline in May, however June is expected to show a 0.4% rise.
Later in the day we see US central bankers gather for the start of the latest FOMC meeting where markets are once again hoping for clues as to the timing of the next round of economic stimulus in the face of recent tepid economic data.
Today?s US data includes the latest consumer confidence numbers for July, which despite three consecutive months of decline in retail sales have held up fairly well. Expectations are for a slight decline from 62 to 61.5.
Personal spending and income for June are expected to show modest increases for June with rises of 0.1% and 0.4% respectively.
It is the manufacturing data that is currently causing most concern with yesterday seeing the Dallas Fed manufacturing numbers show a sharp fall. Today?s Chicago PMI for July could give further clues about the extent of any regional variations with expectations of a slight decline from 52.9 to 52.5.
EURUSD ? after three days of gains the euro dropped back from last week?s highs at 1.2390 to find support around the 1.2220/30 area.
We need to see a break below here to retarget the 1.2150 area.
Last week?s bullish weekly candle suggests and the rebound off 200 month MA comes in at 1.2060, the low this month means the risk of a short squeeze towards 1.2600 remains.
To convince though we would need to see a breach of the 55 day MA at 1.2474, and trend line resistance at 1.2400.
GBPUSD ? once again the 200 day MA at 1.5745 has resisted market attempts to push above it.
This region between 1.5740/80 also coincides with June and July highs so is important resistance in order to prevent a break towards 1.5910. Pullbacks look likely to find support around the 1.5640 level.
There is also trend line support at 1.5440 from the 1.5270 lows and this could conceivably hold any further downside pressure.
Only a close below 1.5240 signals a risk of a return to the July 2010 lows at 1.4950.
EURGBP ? yesterday?s move to 0.7785 managed just managed to stay above last week?s low at 0.7755 which after the positive candle seen last week was a bit of a surprise. Nonetheless while below the 0.7880 level the risk remains for further losses. Below 0.7755 targets the October 2008 lows at 0.7695, a break of which could well see a test of the 2008 lows at 0.7390.
Only a break above resistance at 0.7880 suggests further gains towards the 55 day MA and the 0.8000 level.
USDJPY ? the US dollar continues to find support below the 78.00 level, with cloud support and the May lows 77.60 remaining 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 9 points higher at 5,703
DAX is expected to open 27 points higher at 6,801
CAC40 is expected to open 11 points higher at 3,332
FTSEMib is expected to open unchanged at 13,978