Mario Draghi Takes Centre Stage, Mixed UK Data
Mario Draghi falls into the spotlight once again, as he is aiming to become the next Prime Minister of Italy. Good GDP figures from UK, however economic issues remain. Canada is set to release their preliminary PPI numbers for the month of January.
US Equities Stall
The US equity market managed to squeeze some gains before the closing bell. Only DJIA remained virtually unchanged for the day. Yesterday’s US trading session reminded more of a roller-coaster ride, with investors being undecided what to do next. Most likely that the released numbers for the US initial and continuing jobless claims weighed in negatively, as they showed slight increases. More people lost their jobs and more people continued to claim unemployment benefits. Yesterday’s figures broke the 3-weeks-in-a-row streak of positive claims data. It looks like market participants are taking a break from pushing US indices higher, as they wait for the next positive catalyst. The catalyst could be related to the news surrounding Biden’s stimulus bill, or the roll-out of vaccines.
A New Chapter In Draghi’s Career
Over in Europe, the big news came from Italy, where the former ECB President, Mario Draghi, came closer to becoming Italy’s Prime Minister. Because Italy’s government was already heavily divided, Mario Draghi is seen as a saviour, who can unite all the rival parties. Mr Draghi is seen as a respectful persona in Italy, who already had backing from two Italian parties, the League Party and the Democratic Party. And everything went even better for Draghi, when Italy’s top party, the 5-Star Movement, voted for his designation. This now means that he is only a few steps away from becoming the Italian Prime Minister. Italy’s President, Sergio Mattarella, called on Mr Draghi to present the list of ministers for his new cabinet on Friday. Also, next week, Mario Draghi will have to present his policy program, which will have to be approved by both houses.
The big news here is not only the fact that a former ECB leader is most likely to become a leader of his home country, but also the fact that Mario Draghi could be capable of uniting a strongly divided country. The 5-Star Movement party was created to oppose everything what carried the values of the European Union. But Draghi’s presence might have just helped Italy to get back on the right foot with the EU again. With Draghi as Prime Minister, Italy’s rival parties might be able to secure more funding from the European Union to save the battered Italian economy. No doubt about it, that Mr Draghi might be able to sort things out with his “old friends” at the ECB and the EU Commission. So, it seems that Mario Draghi is not done yet with making history, as he opens a new page in his career book.
EUR/USD — Technical Outlook
After breaking above its short-term tentative downside resistance line, drawn from the high of January 6th, the pair moved a bit further north, but since yesterday, it continues to move sideways, roughly between the 1.2113 and 1.2149 levels. Given the break of that downside line, there is a chance to see a move higher. But in order to get comfortable with that idea, a push above the upper side of the range would be needed. Until then, we will take a neutral stance.
If, eventually, the rate climbs above 1.2149 barrier, marked by the yesterday’s high, this will confirm a forthcoming higher high, potentially setting the stage for larger extensions to the upside. We will then aim for the high of January 22nd, at 1.2189, a break of which could clear the path to the 1.2222 level. That level marks the high of January 13th.
Alternatively, if the rate falls below the 1.2113 hurdle, marked by yesterday’s low, this could open the way towards the 1.2067 zone, which marks the high of February 8th and an intraday swing low of February 9th. EUR/USD might stall there for a bit, but if the bears continue to dictate the rules, the pair may slide to the test the aforementioned downside line from above. The line could provide temporary support for the rate.
Euro Stoxx 50 — Technical Outlook
Although Euro Stoxx 50 continues to trade above a short-term tentative upside support line, drawn from the low of January 29th, the index is still struggling to overcome one of its key resistance barriers, at 3682. That barrier marks the current highest point of February. In order to get comfortable with higher areas, we would need to wait for a break above that resistance barrier first. Until then, we will take a cautiously-bullish approach.
If, eventually, the index makes a move higher and breaks above the 3682 zone, this will confirm a forthcoming higher high, possibly clearing the way towards higher areas. The price might then travel to the 3728 obstacle, a break of which could set the stage for a move to the 3775 level. That level marks the low of February 21st, 2020.
On the other hand, if the index breaks the aforementioned upside line and then slides below the 3624 hurdle, marked by the current lowest point of this week, that would confirm a forthcoming lower low, possibly inviting more sellers into the game. Euro Stoxx 50 might then fall to the 3597 zone, a break of which may set the stage for a push towards the 3573 level, marked near the high of January 28th and near an intraday swing low of February 2nd.
Norway and UK GDP Figures
Norway released its GDP figures for Q4 this morning. The headline QoQ and YoY readings showed up at +0.6% and -0.6% respectively. The Mainland QoQ one managed to beat its initial forecast of +1.2%, and came out at +1.9%.
The UK also reported on its Q4 QoQ and YoY GDP numbers, together with some other of its economic indicators. The GDP figures were the preliminary ones, where the YoY one showed up at -7.8%, whereas the forecast and the previous readings were at -8.1% and -8.7% respectively. The QoQ reading also managed to beat the initial forecast of +0.5%, coming out at +1.0%. Although those are good results, still, the QoQ was well below the previous +16.0% and the YoY reading remained well in negative territory. Market participants might interpret the numbers as a positive, however, this may be a short-term occurrence, as the problems with the British economy remain. We also received some other indicators from UK, like the YoY construction output, YoY industrial production and YoY manufacturing production, all remained in negative waters, despite some of them beating their initial estimates. The pound might get a slight boost against its major counterparts at first, but if traders and investors come into realization, that huge problems still persist with the UK economy, the pound might take a slight hit.
As For The Rest Of Today’s Events
Today, the Chinese market remained closed due to the Chinese New Year celebration. Hong Kong market was also be closed in relation to the Lunar New Year celebration.
In terms of economic data from other countries, Canada will deliver it preliminary PPI numbers for the month of January on a MoM and YoY basis. There are no forecasts available at the time of writing, but the numbers have been rising steadily.
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