In the absence of US and UK markets yesterday Europe was left to its own devices in the wake of the weekend European and Ukraine elections and saw strong gains across the board with the German DAX and the Italian FTSE Mib posting particularly strong gains.
The German DAX, not for the first time went on to post new record highs bringing the prospect of a move towards 10,000 ever closer, while the FTSE Mib also surged strongly after incumbent Italian President Matteo Renzi did better than expected in the weekend European elections.
The weekend vote in the Ukraine appears to have been one major catalyst for yesterday’s strong European session, with the new Ukrainian President Petro Poroshenko making conciliatory noises towards Russia, as well as the European Union in an attempt to bring together the various factions in an attempt to de-escalate recent tensions.
With Russia also appearing to be conciliatory, despite large parts of the eastern part of the Ukraine unable to vote due to the actions of pro-Russian separatists, there appears to be some optimism that some form of deal can be reached, despite Ukrainian forces launching air strikes against Russian militants in the east of the country.
While there are some concerns that Russia might intervene to support the separatists the argument for doing so is becoming less obvious by the day, given that Russia can no longer use the argument that Ukraine has an illegitimate President to support its case, despite requests for intervention from pro-Russian separatists.
The weekend European elections don’t appear to have had that much effect on markets despite a large anti EU vote in a number of countries, particularly in the UK, France, Greece and Denmark.
The reality is that the outcome of these elections has very little bearing on what is likely to happen with respect to economic policy in the various European capitals which are striving to engineer an economic recovery, though European politicians will ignore the message being sent by voters at their peril.
The main focus of the market though remains squarely on next week’s ECB meeting and the potential for action from the central bank in the wake of comments yesterday by ECB President Draghi when he warned of a “pernicious negative spiral” of low inflation and weak lending, were constraining credit flows in the euro area. These comments once again reinforce the prospect that the ECB will act to ease policy next week and helped reinforce yesterday’s strong gains and will see the FTSE 100 play catch up when it opens today.
Later in the US the S&P 500 looks set to return from their long weekend to open at a new all-time high above 1,900 ahead of key durable goods data for April and consumer confidence data for May. These are expected to come in mixed with durable goods expected to decline 0.5%, though consumer confidence is expected to improve from 82.3 to 83.2, now that the weather is starting to warm up.
EUR/USD – the euro continues to flirt with the 200 day MA at 1.3635 with the lack of any strong move either way suggesting a continued consolidation rather than a break out. Twin lows at 1.3615 suggest the potential for a rebound despite breaking below our double top support line at 1.3645 and the 200 day MA. We need a move back above the 50 day MA and through 1.3780 to stabilise and retarget 1.3850.
GBP/USD – last week’s rally stalled at 1.6920 and as such keeps the prospect of a move towards 1.7000 very much on the cards. The main support remains at last week's lows at 1.6805 and the 50 day MA at 1.6755.
EUR/GBP – the euro managed to push below 0.8100 and hit its lowest levels since December 2012 last week. With a new low at 0.8080 a break lower could well see further losses towards 0.8035. Resistance now sits at 0.8130 with only a move back through the 0.8200 area hinting at a return towards 0.8250.
USD/JPY – last week’s brief break below the 200 day MA wasn’t able to push beyond the lows this year at 100.65, and the subsequent snapback could well see a return towards 103.10 and the highs this month. We need to push beyond the 50 day MA first currently at 102.25 and see a close below 101.20 to target a move towards 100.00.
Equity market calls
FTSE 100 is expected to open 24 points higher at 6,840
DAX is expected to open 5 points lower at 9,888
CAC 40 is expected to open 14 points lower at 4,513
CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.