US equity markets finished in the red last night after the minutes from the Federal Reserve meeting in January showed that economic sentiment was picking up, and there was some evidence that prices were beginning to rise. The US central bank believes it will reach its inflation target of 2%, but they are not afraid of the cost of living becoming too high.
Traders are fearful the US central bank might quicken their pace of interest rate hikes. The reaction by traders sent the yield on the US 10 year government bond to 2.95% - it’s highest in four years. The US dollar index pushed higher, which in turn put pressure on gold. The inverse relationship between the greenback and gold has been strong lately, and last night was no exception.
French CPI is due out this morning at 7.45am (UK time) and traders will be keen to see what the cost of living is like in the second largest economy in the eurozone. The consensus is for the rate to remain steady at 1.5%.
Broadly speaking the economic announcements from France have been positive. As we saw yesterday the growth rate of the manufacturing and services sector cooled a little, although they were at multi-year highs in December. It is likely the relatively strong euro has taken a small toll on the French economy.
Mario Draghi, the President of the European Central Bank (ECB) has voiced his concerns about the strength of the euro, but he has also felt the door open to keeping monetary policy loose should inflation in the currency bloc continue to be underwhelming. The French contribution to the area’s inflation rate will be worth noting.
Sterling came under pressure after the UK revealed the unemployment rate ticked up to 4.4% from 4.3%. Dealers shrugged off the fact at average earnings on a monthly basis increased to 2.5% from 2.4%. The report was one step forward, and one set backward. The jobless rate in the UK is now just off multi-decade lows so it fair to say jobs market is healthy. It is encouraging to see that earnings ticked up, as Britons who earn more, spend more, which is good for the economy. At 9.30am (UK time) the UK will reveal the second-reading of the final-quarter GDP, and economists are anticipating an annual rate of 1.5%.
EUR/USD – has been pushing higher since November and if the positive run continues it could target 1.2600 or 1.2700. Moves lower may find support at or 1.2200. A break below 1.2200 could see a return to 1.2092.
GBP/USD – is still in the upward trend that it has been in since March, and resistance may be encountered at 1.4150 or 1.4400. Pullbacks might find support at 1.3900 or 1.3764.
EUR/GBP – has been range bound since December, with 0.8929 being the top end of the range, and with 0.8689 at the bottom of the range. 0.8800 is a region of consolidation and any deviation from the area, could see it target either end of the range.
USD/JPY – has been in decline since November, but we have seen a bounce back, and if the upward move continues it could target 108.00 or 109.78. If the wider downward trend continues, it could target 105.53 or 104.00.
FTSE 100 is expected to open 71 points lower at 7210.
DAX is expected to open 95 points lower at 12375.
CAC 40 is expected to open 46 points lower at 5256.
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