A Slow Start to a Busy Week

With close to nothing on the economic calendar for investors to focus on, the start today was always going to be a rather muted affair. Although it’s a slow start, the week does promise to pick up going forwards with the World Economic Forum in Davos, the European Central Bank monetary policy meeting, the UK jobs market report, followed by US & UK GDP data, in addition to US earning season being in full swing.  

US Shut down, inconvenience rather than reason to heavy sell off 

Focusing back on today, despite a small, initial sell off the FTSE has bounced higher within the first half hour of trading. The early sell off was unsurprising given the back drop of the US government shut down, which has been ongoing since midnight Friday. The Republicans and Democrats must vote the spending bill through the Senate in order for the US government to be able to continue spending. In the meantime, and whilst the two sides are hung up on disagreements over Trump’s immigration policy, there is a halt to any spending.

 This is likely to be a temporary inconvenience rather than any reason for a serious selloff in the dollar or equities, which was evident in the Asian session overnight. Safe havens such as gold and the Japanese yen, also rose slightly in response to a marginally more cautious sentiment. A repeat vote in the Senate will happen at midday (EST). 

Progress in German political deadlock 

Meanwhile Europe opened on the front foot, boosted by news of progression in the political deadlock in Germany. The SPD party, agreed on Sunday to formally begin coalition talks with Angela Merkel’s CDU party in a move which could end a 4-month political vacuum and put Angela Merkel back in power for a fourth term.

This is not only good news for Germany, but the euro is also showing signs of elation as well. Merkel retaking power would oil the path for the sweeping changes that are being planned for the European Union, making them much more likely to be pushed through.

EUR/USD to $1.23? 

EUR/USD jumped on the open on Sunday evening, following the vote, however, it was unable to hold onto those gains in trading overnight, dipping to a low of $1.2214. The mood for the euro has picked up again in the European session regaining $1.2250. A meaningful move beyond this level could see EUR/USD advance to the $1.23 mark, where the next major hurdle can be seen. Breaking above there, 3-year high resistance is at $1.2325. 

We are expecting the EUR/USD to remain within this familiar range as Investors are unlikely to make any gressive bets either way prior to the ECB monetary policy meeting minutes on Thursday.