Markets await Jackson Hole as European unemployment set to increase
By Michael Hewson (Senior Market Analyst at CMC Markets UK)
While markets have been fixated this week on what Fed Chairman Ben Bernanke may say at Jackson Hole later today the small matter of economic data has pretty much played second fiddle to a lot of the speculation.
Be that as it may it is the fairly buoyant nature of the recent data which could well limit the room for manoeuvre of the Fed Chairman.
Whatever Bernanke does say it remains quite likely that once the markets have absorbed what he has to say, if anything, the focus will inevitably shift towards the next Fed meeting which is scheduled for September 12th and 13th.
Before that in the wake of this week?s US data we still have the small matter of Chicago PMI for August which is expected to remain steady at 53.5, while the final August Michigan confidence figure is expected to remain at 73.6.
The same cannot be said for the economic data in Europe which continues to deteriorate and yesterday?s most recent German unemployment data underlined that with a higher than expected increase in the August numbers by 9k. German retail sales for July are expected to show the German consumer remains reluctant to spend with a rise of 0.2%.
As unemployment in Germany continues to edge up, elsewhere in Europe the rise is much more concerning, and much more rapid with policymakers unable to craft any sort of strategy to deal with it, if the current policy response is any guide. The fragmented nature of the response is partly to blame for the lack of strategy with divisions in Germany particularly prevalent.
Reports today have suggested that Bundesbank chief Jens Weidmann has threatened to resign over the current German government response to the crisis, which would be a blow to Mrs Merkel who appointed him as successor to Axel Weber, who also resigned for the same reasons.
Yesterday?s disappointing European confidence numbers point to a European economy ill at ease with itself and ill at ease with events yet to unfold as the measure slipped sharply in August to 86.1, from 87.9 in July, the sixth successive monthly decline. To add to concerns prices appear to be edging higher driven by higher fuel prices, with expectations that CPI for August will increase to 2.5% from 2.4% in July.
Today?s release of July unemployment figures for Italy and the Eurozone are also expected to point to further increases, with Italian unemployment set to rise to 10.9% while the Eurozone number is expected to rise to a new record of 11.3%.
EURUSD ? the 100 day MA continues to bear down on the price action with resistance now at 1.2590, with the current weakness suggesting further declines towards longer term support near the 1.2420 area. Only a break of 1.2615 targets the June highs at 1.2750.
To reopen the downside primary trend line support at 1.2390, from the 1.2045 lows needs to be broken.
The key level on a monthly close remains the 200 month MA at 1.2060.
GBPUSD ? another attempt to move higher failed just above 1.5870 yesterday with the key level on the upside remaining at 1.5910, which is the 61.8% retracement of the 1.6305/1.5270 down move.
While unable to break through this level the cable remains at risk of sliding back towards last week?s lows at 1.5675. Only a break above 1.5910 brings the 1.6000 level back into play.
The long term trend line support lies at 1.5545 from the 1.5240 lows.
EURGBP ? Wednesday?s bearish engulfing candle on the daily charts keeps the pressure on the downside for a move towards the 0.7880 support area.
A break below the 0.7880 level has the potential to retarget the 0.7820 area, while on the upside a move above 0.7965 targets a move to 0.8000.
USDJPY ? resistance currently remains at 78.80 and above that at the 200 day MA at 79.27 which needs to be overcome to target a return towards the highs last week.
While below 78.80 now the risk of a move back to the range and August lows at 77.80 remains. The key weekly cloud support remains at 77.30.
Equity market calls
FTSE100 is expected to open 2 points lower at 5,717
DAX is expected to open 2 points lower at 6,893
CAC40 is expected to open 2 points higher at 3,381
FTSEMib is expected to open 8 points lower at 14,772