The beginning of the week witnessed a varied start for European markets, with the FTSE100 standing out amid a negative trend, propelled by a resurgence in the energy sector and robust telecom performance. Despite concerns about potential delays in global supply chains due to geopolitical tensions in the Red Sea and Suez Canal, caused by Houthi rebel attacks, oil and gas prices rebounded, exerting upward pressure on inflation, albeit at early stages.
Despite alarmist suggestions of soaring petrol prices leading up to Christmas, oil prices remained near 5-month lows. Other European markets experienced a modest decline, driven by profit-taking after weeks of gains and further indications of economic weakness in Germany, evidenced by a weak IFO business confidence survey.
Of note is the European Central Bank‘s (ECB) recent decision to leave rates unchanged, accompanied by a staunch refusal to consider rate cuts in the near future, despite mounting economic challenges. ECB President Lagarde appeared hawkish, emphasizing that rate cuts were not under discussion, a stance diverging sharply from the U.S. Federal Reserve’s contemplation of rate cuts amidst strong economic indicators.
The apparent disconnect between the ECB’s position and economic data, indicating a potential recession, raises concerns about the region’s economic health. With flash Consumer Price Index (CPI) numbers slowing, today’s final CPI figures are expected to remain unchanged, while core CPI is slowing at a lesser rate, standing at 3.6%.
While Lagarde emphasizes core numbers in discussions on rate cuts, the broader economic data suggests headline inflation could return to 2% by the start of the next year, making the ECB’s reluctance to consider rate cuts less credible.
On the other side of the spectrum, the Bank of Japan maintained its interest rate and monetary policy unchanged, grappling with a headline rate of -0.1%. The central bank‘s future policy intentions will be closely scrutinized, given recent hints about potential shifts.
Against this backdrop and a positive close for U.S. markets, European stocks are poised to open slightly higher.
Market Outlook and Key Currency Pairs:
EUR/USD: Bias remains for a move back to the 200-day SMA at 1.0830 while below recent peaks at 1.1015/20. A break above 1.1030 has the potential to target the July peaks at 1.1275.
GBP/USD: Last week’s failure at 1.2795 prompts weakness, with potential for a move back to the 200-day SMA at 1.2520. Bias remains for gains while above the 200-day SMA at 1.2520, with additional support at 1.2590.
EUR/GBP: Rebounded back to the 100-day SMA at 0.8640, with a break targeting the 0.8700 area. Support at 0.8570/80, with a move below 0.8580 targeting 0.8520.
USD/JPY: Squeezed back above the 200-day SMA at 142.50, with potential to move up to 146.00 in the short term. Bias remains for a move below 140.00 while below 146.00.
Market Openings:
FTSE 100: Expected to open 10 points higher at 7,624.
DAX: Expected to open 32 points higher at 16,682.
CAC40: Expected to open 8 points higher at 7,577.
