European Open: EUR and DAX perk up ahead of ECB, UK CPI beats

Asian Indices:

• Australia's ASX 200 index rose by 107.7 points (1.62%) and currently trades at 6,757.30
• Japan's Nikkei 225 index has risen by 684.91 points (2.54%) and currently trades at 27,647.92
• Hong Kong's Hang Seng index has risen by 296.47 points (1.43%) and currently trades at 20,957.53
• China's A50 Index has risen by 7.65 points (0.05%) and currently trades at 14,151.22

 

UK and Europe:

• UK's FTSE 100 futures are currently up 32 points (0.44%), the cash market is currently estimated to open at 7,328.28
• Euro STOXX 50 futures are currently up 5 points (0.14%), the cash market is currently estimated to open at 3,592.44
• Germany's DAX futures are currently up 67 points (0.5%), the cash market is currently estimated to open at 13,375.41

 

US Futures:

• DJI futures are currently up 115 points (0.36%)
• S&P 500 futures are currently up 45.25 points (0.37%)
• Nasdaq 100 futures are currently up 15.75 points (0.4%)

 

 

The weaker US dollar and expected reopening of Nord Stream 1’s pipeline allowed appetite for risk to extend its rebound for a second day. Indices across Asia, Europe and US were broadly higher by yesterday’s close, and key metals such as palladium and copper were also higher. Commodity currencies NZD and AUD were the strongest majors of the session, with the latter given a boost from hawkish RBA (Reserve Bank of Australia) minutes.

 

UK inflation continues to rise

• Consumer prices rose to 9.4 y/y (9.1% previous, 9.3% forecast)
• However, CPI rose 0.8% m/m (above 0.7% forecast and expected)
• Core CPI fell to 5.8% y/y as expected, down from 5.9% previously

 

Consumer prices continued to rise overall in June, and that only adds further pressure for the BOE to hike rates for a sixth time this cycle. We know that BOE are likely to hike in a couple of weeks, yet the amount remains in question.

BOE Governor Andrew Bailey this week had said whilst a 50-bp hike will be considered at their next meeting, it is down to an individual’s assessment as to whether they think they will pull that trigger. In all likelihood I suspect they will now go down that path, as 50 (and even 75-bp) hike are the new norm, and it is difficult to argue that you’re taking inflation seriously whilst also gradually rising rates. The BOE hold their next monetary policy decision on August the 4^th.

 

EUR/USD 4-hour chart:

With the US dollar pulling back, it could allow the euro to strengthen into tomorrow’s ECB meeting on the anticipation of a 50-bp hike. However, this runs the risk in a “buy the rumour, sell the fact” which could then see the euro top. Especially if it is not a hawkish hike – or they now ‘surprise’ with the original 35-bp hike. Therefore, I’m inclined to have a bullish bias leading into the meeting and a bearish bias following it. The 1.0300 – 1.0350 is the next target for bulls, a break above which invalidates the thesis for a pending top.

 

DAX daily chart:

The DAX has seen a strong rally from a key support level after forming a bullish divergence on the RSI. The market formed a double bottom around the March low of 12,431.50, broke above 13,000 and hit a 1-month high. RSI is now above 50 to show momentum is positive. Whilst the rally found resistance at the monthly pivot point, it closed at the high of the day as a show of strength. The bias remains bullish above 13,000 and for the rally to rise to 14,000 and the monthly R2 resistance zone.

 

FTSE 350 – Market Internals:

FTSE 350: 4054.21 (1.01%) 19 July 2022

• 294 (83.76%) stocks advanced and 41 (11.68%) declined
• 8 stocks rose to a new 52-week high, 2 fell to new lows
• 22.51% of stocks closed above their 200-day average
• 49% of stocks closed above their 50-day average
• 19.37% of stocks closed above their 20-day average

 

Outperformers:

• + 18.85% - 4imprint Group PLC (FOUR.L)
• + 8.72% - Baltic Classifieds Group PLC (BCG.L)
• + 7.11% - TI Fluid Systems PLC (TIFS.L)

 

Underperformers:

• ·-14.72% - Aston Martin Lagonda Global Holdings PLC (AML.L)
• ·-3.21% - Ocado Group PLC (OCDO.L)
• ·-2.38% - HALEON PLC (HLN.L)

 

 

Economic events up next (Times in BST)

 

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