The story overnight is yet again the strength of the US dollar

European markets are set for an incredibly busy week as we see the first week of the new month. Last week’s economic calendar and news flow saw a return to the norm with fears over the ECB and Eurozone recovery, as well as Chinese growth fears return to the markets after being somewhat forgotten during the Scottish referendum. The major announcements of the week will happen later in the week so for the early part it will be a case of waiting and speculating over the major announcements. However this doesn’t mean that the early part of the week is without its data, in fact today’s session sees a whole host of economic data released throughout Europe and the US. Ahead of the open this morning we expect to see the FTSE open lower by 2 points while the German DAX looks set to open lower by 26.

The story overnight is yet again the strength of the US dollar as Asian markets fell led by a thrashing in Hong Kong. The strength of the US dollar is forcing investor to move away from a lot of the stock market assets and put it into the greenback. With a potential rate hike becoming more likely and the data showing constant improvement it’s no surprise we are seeing the positive move and nowhere is this more apparent than in USDJPY. However if anything is going to shift investor opinion about the dollar it could well be this week as the data is incredibly heavy. This afternoon we will get the release of the personal consumption numbers as well as pending home sales figures. Investors will be yet again looking for any kind of positive number that could force Janet Yellen’s hand into an earlier rate hike.

The timelines on the movement of rates still looks to be fairly long with no change in language in last months fed meeting. However the better the economic readings the better the more pressure is heaped on Janet Yellen. There seems to be an obsession in the market with pushing rates higher. With a movement in rates seen as a move back to normality after years of hardship. However I would ask the question do we need to raise rates? With the economic data looking so good, and the electorate only just starting to feel the benefit of these lagging indicators, a movement in rates too soon could well undo all of the hard work it has taken to get back to the place we are right now.

As the week moves on the data will increase with its importance. Tomorrow sees the UK GDP take centre stage before traders start to position themselves ahead of Thursday’s ECB rate decision and Friday’s non farm payroll data. Mario Draghi and the ECB’s rate decision is arguably the biggest bit of data of the week as it could be the time we get a full blown asset purchasing plan for the Eurozone. We have seen a number of measures thrown at the eurozones ultra low inflation and low growth issues but so far nothing has worked. It could well be that the last option Mario Draghi has is full blown QE starting potentially the month the US finally finished their plan.