Sea Of Blue For Europe After Fresh US Highs – LCG Research Team


6.35am, Tuesday 23rd January 2018.
By LCG Research Team

US Indices Hit Fresh Record Highs As US Government Shutdown Ends
US law makers broke their deadlock to end the three-day government shut down on Monday, pushing US equity indices to fresh records. All three major US indices, the Dow, the S&P and Nasdaq reached fresh all-time highs gaining 0.6%, 0.8% and 1% respectively. Republicans and Democrats reached a deal in the previous session, drawing an end to the 72-hour halt in spending. With the government shutdown in the rear-view mirror, investors could shift their focus back to the slew of corporate earnings due for release as earning seasons continues at full throttle.

We are currently 68% of the way through earning season and the big players to watch out for this week include Proctor & Gamble, American Airlines, Ford and Caterpillar.
The solid performance overnight is ensuring a sea of blue is on the cards for Europe this morning.

Yen spikes on BoJ
The Bank of Japan, as widely expected, concluded its two-day monetary policy meeting by keeping interest rates on hold at -10bps. Meanwhile, the central bank’s inflation report suggested inflation was likely to continue moving towards the central bank’s 2% target level. Following the release, USD/JPY spiked to 110.56 before increased dollar strength following the end of the US shutdown pulled the rate back towards 110.80

The World Economic Forum Begins with Trump as the Star Guest
The day couldn’t pass without mention of the opening of the World Economic Forum in Davos. This is where world leaders and elites go in order to “improve the state of the word”. Rarely are statements from the forum game-changing. However, this year the WEF will be attended by US President Trump, a rarity in itself as US Presidents tend not to attend. The chances are that Trump will be looking to use the platform to promote his America First drive. Should this be the case we could see some volatility in the dollar as a result.

Sentiment Data to Drive Euro
Today’s eurozone economic calendar is slightly more entertaining than the previous session. Sentiment data followed by consumer confidence figures will look to push the euro back up to $1.2275, a level that is proving a tough to crack. Whilst sentiment is expected to be upbeat in the bloc, the euro could struggle again around this level as investors look cautiously ahead to the ECB meeting on Thursday. Should the euro break through $1.2275, the next resistance level is seen at $1.2300, followed by $1.2320. On the downside support can be seen at $1.22 and $1.2165.

Pound may struggle to retain strength moving towards labour data
The pound charged northwards in the previous session and overnight on Brexit optimism, pushing above the important psychological level of $1.40 for the first time since the Brexit referendum. The move came despite the IMF downgrading UK economic growth to just 1.5% next year, from 1.6%. High impacting UK data is once again hard to come by on Tuesday, with investors instead looking towards UK average wage growth data on Wednesday and GDP data (Friday), which could make any further gains in sterling unlikely. No matter from which angle you look at it, this recent rally looks unjustified, not least when considering the widening 10 year UK -US spread.

Opening calls
FTSE to open 25 points higher at 7740
DAX to open 75 points higher at 13,538
CAC to open 27 points higher at 5568


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