Eurozone unemployment to hit a new record as US markets get set to reopen
By Michael Hewson (Senior Market Analyst at CMC Markets UK)
With the talk that US markets could well open again and it being month end the potential for some sharp moves remains high, given the extended absence of US markets due to Hurricane Sandy. It will also give US investors the first opportunity to react to some of the economic data and earnings reports from Europe this week, in the context of month end flows and portfolio adjustments.
As the clean-up begins it will also prompt economic impact assessments of the damage to the US economy as well as the possible negative effects on Q4 growth, from an output point of view, in the event the return to normality takes longer than expected.
Back in Europe while earnings for the most part have been largely positive, the same cannot be said for the economic data, with German unemployment data rising more than expected yesterday and Spanish Q3 GDP confirmed at a slightly better than expected -0.3%.
Today?s economic data is unlikely to offer much in the way of respite either with the publication of the latest German retail sales numbers for September which are expected to show a rise of 0.3%, a slight improvement on the previous 0.1%.
It is the unemployment data though that will be the main focus of attention with European unemployment for September expected to rise to a new record of 11.5%, while Italian unemployment is expected to rise to 10.8% from 10.7%.
Also today Eurogroup finance ministers will be holding a conference call, ahead of another meeting on November 12, the contents of which are likely to revolve around Greece, and how to deal with the country?s financing gap, in the wake of reports that Greece had reached agreement with its international creditors on the new budget cuts necessary to release the next tranche of funds and avert another default.
The new budget does need to be voted on in the Greek parliament, which should happen sometime next week, and cracks are already appearing in the Greek government with the Democratic Left refusing to back the new measures.
Even if passed, implementation risks are likely to remain, with pressure starting to build on Germany to consider some form of debt restructuring program to make Greece?s debt load more sustainable.
EURUSD ? yesterday?s rebound and failure to push below 1.2900 brings the risk for a move towards 1.3030 ever more probable, especially given the confluence of potentially bullish indicators that so far are remaining intact.
These are trend line support from the 1.2045 lows, the 200 day MA and the golden cross on the 50 and 200 day MA.
A break of 1.3030 on the upside suggests a move towards trend line resistance 1.3105, 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 key levels remain trend line resistance from the 1.6310 highs in September at 1.6120 as well as the 1.6140/50 area. A break beyond 1.6150 opens up 1.6310 as well as 1.6285 trend line resistance from the 2011 highs at 1.6750.
Any weakness should find support at 1.5910, last week?s low, and 38.2% retracement of the 1.5270/1.6310 up move.
EURGBP ? having tested the 0.8070 area this remains the key obstacle to a test of the 200 day MA at 0.8110 while the 55 day MA at 0.8000 continues to support the downside.
USDJPY ? we got the move below the 200 day MA and the rebound from 79.20 while closing the session above the 200 day MA, despite last week?s bearish engulfing daily candle. Only below 79.20 targets 78.50.
The US dollar needs to push back 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 11 points lower at 5,839
DAX is expected to open 6 points lower at 7,278
CAC40 is expected to open 9 points lower at 3,450