Investors appear to be suffering from a deficit of enthusiasm as we continue to wind down towards the end of the year, having circumnavigated a raft of central bank meetings in the past two days that were fairly upbeat in their overall assessment with respect to the economic outlook over the next few months.
The focus instead appears to be shifting to the possibility that the highly anticipated tax plan currently being drafted in the US may be on the point of starting to unravel a little after Republican Florida senator Marco Rubio said he would not vote for the package without some changes to some tax credits. With only a slim majority it would appear that some senators might be starting to waver on some of the changes being proposed.
Europe’s markets appeared unimpressed by some decent economic data from both France and Germany yesterday, as well as a fairly upbeat assessment of the overall economy from the European Central Bank as it set out its latest economic forecasts. The euro slipped back despite an upgrade in both growth and inflation forecasts, however the fact that the forecast for 2020 was still at a fairly low 1.7%, and Draghi’s insistence that the ECB remained prepared to act swiftly in the event of any future problems, does suggest that the possibility of a significant near term tightening still remains some way off.
It was also no surprise that the Bank of England left rates unchanged having raised them just over a month ago, but the overall message was also one that kept open the prospect that we could well see further increases as we look ahead to 2018, with another hike coming as early as May next year. This slightly more upbeat tone along with a decent UK retail sales number for November, helped in giving the pound a nice lift pushing it up against the US dollar and the euro.
US markets finished the day lower despite another upbeat assessment of the US economy from the Federal Reserve as the central bank raised rates for the third time this year. The US dollar did come under some pressure given that the outlook for future rate increases was left unaltered over concern about the inflation outlook.
US retail sales in November and the Thanksgiving period saw a nice bump higher but it would seem that yesterday’s sell off may well have had more to do with the fact that the latest progress on the tax bill appears to be encountering a couple of more speed bumps in the process of trying to get the legislation in such a form that it is able to get through both houses.
EURUSD – continues to range trade between 1.1920 and the lows of the last couple of weeks at 1.1700. A move below the 1.1700 area retargets the November lows at 1.1570.
GBPUSD – we’ve continued to edge higher through the 1.3420 area and as such could well see a retest of the 1.3500 level and recent highs at 1.3660. We still remain susceptible to a decline back towards trend line support from the March lows at 1.3200.
EURGBP – looks set for a retest of the 0.8740 area after failing to move beyond the 0.8870 area earlier this week. A move through the 0.8880 level and 50 day MA retargets the 0.8980 area.
USDJPY – failed to overcome the 114.00 level and as such the current range remains intact with a retest of the recent lows at 111.60 a distinct probability.
FTSE100 is expected to open 3 points lower at 7,445
DAX is expected to open 20 points lower at 13,048
CAC40 is expected to open 10 points lower at 5,347
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