European markets embarked on a cautiously positive start to the new week, with the FTSE100 lagging behind due to weakness in the energy sector driven by sharp declines in crude oil and natural gas prices.
The decline in energy prices was attributed to two primary factors. Firstly, Saudi Aramco’s decision to cut selling prices amid concerns over US producers gaining market share and slowing demand contributed to the slide in oil prices. Additionally, natural gas prices slid despite colder weather, as supplies and inventory remained at highly elevated levels.
In contrast to Friday’s performance, US markets showed improvement following a decent payrolls report and a lackluster ISM services survey for December. The tech sector outperformed, notably with the Nasdaq 100’s robust performance driven by Nvidia’s announcement of a significant improvement in chip design for better utilization of AI, leading to fresh record highs in its shares.
The rally in the US was supported by weakness in treasury yields, moving away from last week’s peaks in anticipation of this week’s US inflation numbers. The New York Fed‘s report indicating a decrease in 1-year inflation expectations from 3.36% to 3.01% in December further contributed to the positive sentiment.
The strong finish in the US is expected to resonate in today’s European open, with a solid start anticipated.
On the economic data front, Germany is set to release industrial production numbers for November and EU unemployment figures. Yesterday’s German factory orders disappointed with a rise of 0.3%, well below the forecasted 1.1%. The German economy, grappling with economic challenges, is expected to show a modest rise of 0.3% in industrial production for November, following a 0.4% decline in the previous month.
Persisting economic difficulties in Europe’s largest economy may cast doubt on the European Central Bank‘s (ECB) stance that a rate cut won‘t be considered before summer, as suggested by ECB governing council member Boris Vujcic. If today’s industrial production figures disappoint, pressure on the ECB to contemplate modest easing measures is likely to increase.
Unemployment numbers for November are anticipated to remain steady at 6.5%.
Currency Market Analysis:
EUR/USD seems to have found support at 1.0875, with potential for an upward move if it stays above the 200-day SMA at 1.0830. A break above 1.1030 could target December peaks at 1.1140.
GBP/USD continues to find support just above 1.2600 and remains in an uptrend from October lows. Further gains are expected while above the 200-day SMA and support at 1.2590, with a target towards 1.3000.
EUR/GBP is drifting lower with support at 0.8570/80, with key support at December lows of 0.8545. Resistance is currently at the 0.8670 area.
USD/JPY experienced resistance at the 146.00 level, potentially vulnerable to a pullback towards the 200-day SMA at 143.20, with the next support at 140.00.
Market Open Expectations:
FTSE 100 is expected to open 18 points higher at 7,712.
DAX is expected to open 35 points higher at 16,751.
CAC40 is expected to open 20 points higher at 7,470.
