European open – Markets in the red into weekend

Markets back in the red despite this week’s bounce

We’ve seen a decent bounce in equity markets in what has been another quite extraordinary week – I’m thinking primarily of the UK, of course – and yet despite this, it’s hard to find many people that are actually bullish near-term which makes me think this particular sell-off has not yet run its course.

A look at Asia trade overnight and how European and US futures are shaping up ahead of the final trading day of the week would appear to support this view. This still looks like a very vulnerable market and while US China trade talks may be encouraging, Europe has a number of problems that aren’t yet heading towards a successful conclusion and that’s going to take its toll.

One eye will naturally remain on the various political stories that have been such an important driver for markets today but there’s also a lot of data that could provide a welcome distraction. This primarily comes in the form of PMIs, with manufacturing and services surveys for December being released for the eurozone throughout the early part of the European session.

Aussie drops on China data miss

ECB confirms end of QE and offers less optimistic view

The PMIs come after the ECB confirmed that its QE program will come to an end this month as planned, although reinvestments will continue well beyond the central bank starts raising rates. The central bank didn’t change it view on rate hikes, sticking with its commitment to keep them at current levels at least through the end of the summer next year, although their internal view on what this means may have changed as the economy has slowed.

Source – ECB

Draghi acknowledged that risks are leaning more to the downside, as the ECB revised lower its growth forecasts, which I think will ultimately delay the first hike until at least this time next year, if not a little longer. The euro area economy faces numerous challenges next year including weaning itself off net QE increases, slower global growth and political flare up, such as what we’re seeing in France and Italy, where the government remains at odds with the European Commission over its budget. It’s latest compromise – reducing its deficit target to 2.04% from 2.4% is unlikely to be enough to get Brussels on board.

Aussie drops on China data miss

Gold rally held back by continued dollar support

The growing number of dollar bears are being forced to be very patient, with the pound remaining under Brexit pressure and the euro struggling to generate the momentum higher. This is providing near-term pressure for Gold which has a strong inverse relationship with the greenback but has looked bullish itself. Gold is now testing $1,240 from the upside having broken above here last week. If this can hold, it could be a bullish signal with the next levels above being $1,260 and $1,280.

Gold Daily Chart

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Another patchy session on Wall Street

Oil prices bottoming or pause in selling?

The post-production cut impact on oil prices has been modest to say the least but for now at least, the failure to break new lows will come as a relief. We now look stuck in a tight range near the lows, between $50-54 in WTI and $58-63 in Brent. This may in itself be a bottoming setup in itself but there doesn’t appear to be too many rushing to get in at these levels which suggest sentiment may be tilted to the downside for a little longer yet.

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.