European stocks slid back yesterday on a combination of concerns over US, China relations, and a rise in coronavirus infection rates in Spain, which prompted concerns about a second wave, helping to send travel stocks down sharply. This rise in cases, and subsequent quarantine is particularly bad news for Spain, which has seen its summer and tourism economy ravaged by the virus. With tourism so vital to Europe’s weakest economy, there is a fear that any rebound will be so weak as to be almost unnoticeable.

Today’s Spanish unemployment numbers for Q2 are expected to see a rise to 16.5%, from 14.41%, a number that could well go even higher unless quarantine restrictions are eased swiftly.

These concerns about a second wave aren’t merely confined to Europe, with rising cases in parts of Asia as well, notably in Hong Kong and Australia, while US cases have continued to show few signs of slowing.

US markets nonetheless shrugged off these worries closing higher after a weak finish at the end of last week, on hopes that the start of new coronavirus vaccine trials from Moderna and Pfizer will yield some positive results, while the Republican party also unveiled the plans for their new $1trn stimulus bill, which is designed to replace the old one which expires at the end of this week.

More notably, gold prices continued to push higher making new record highs, while the US dollar slid further, making fresh 22-month lows against a basket of currencies, as well as the euro.

The rise in US markets has continued to be driven by the likes of the tech sector with Facebook, Amazon, Apple, Microsoft and Alphabet responsible for the majority of the gains in the main benchmark index year to date, in what could be described as a mushroom effect. Take these 5 stocks out and the S&P would be down year to date, while the much broader Russell 2000 is down 10% year to date.

Today’s European session looks set to take its cues from last night’s positive finish for US markets with a higher open, and ahead of the start of today’s Federal Reserve rate meeting, which is due to conclude tomorrow.

It’s a light day on the data front with the latest US consumer confidence numbers for July set to show a modest drop this month in light of the recent sharp rise in coronavirus cases, and reimposition of lockdowns which have spread across the US over the past two to three weeks. A modest decline from 98 in June to 94.1 is expected.   

EUR/USD – has continued to edge higher towards the 1.1825 level, and 61.8% retracement of the 1.2555/1.0635 down move. The euro needs to hold above the 1.1590 level and 50% level for this to unfold.

GBP/USD – has moved through the 61.8% Fibonacci retracement of the 1.3600/1.1412 down move at 1.2770, as well as the June highs 1.2815, opening up the prospect of a move towards 1.3020. Support comes in at the 1.2500 level and the lows from 15th July.

EUR/GBP – feels like it wants to go higher, but still capped at the 0.9135 level however the dips are getting shallower. A move through 0.9140 targets 0.9180. Support remains back at the lows this week at the 0.9000 area, just above the 50-day MA at 0.8980.

USD/JPY – has slipped below the 106.50 area, and could be set up for a move towards the 104.50 area initially. We now have resistance at 106.50, as well as the 107.50 area. 

FTSE100 is expected to open 25 points higher at 6,130.

DAX is expected to open 70 points higher at 12,908.

CAC40 is expected to open 11 points higher at 4,950.

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