With the inflation data from the constituent countries of the Eurozone coming in broadly as expected (if not a little better), the euro has managed to gain this morning, whilst the DAX Xetra has also pulled back higher again following on from yesterday’s correction. However, since European traders took their positions in the early moves, there has been little real direction in either equity markets or forex. This afternoon we have a few Fed speakers, Chairman Yellen (dove), Charles Plosser (hawk) and Narayana Kocherlakota (dove). The market could be waiting for their perspective on monetary policy, however unless Plosser comes out and massively changes tack (in any case he will not be a voting member of the FOMC in 2015) it is unlikely that the market will find out anything it did not already know. It is more likely that traders will be waiting for the next look at key Eurozone growth data tomorrow.
In fact if you look across the week as a whole, with a dearth of US economic data traders have been in wait and see mode for the past few days. The S&P 500 has added just 8 points across 3 sessions (S&P 500 futures are expecting around 6 points higher at the open today), whilst the DAX is broadly flat on the week, whilst the FTSE 100 has added just 25 points. This suggests an element of caution in front of the Eurozone GDP data.
One of the key factors that drove the markets lower during late September into October was the disappointing German and Eurozone-wide economic data (ZEW and Ifo data especially). We will get a first look at how the Eurozone performed in Q3 tomorrow. The Eurozone has posted meagre growth for the past 5 quarters and the expectation is for a reading of +0.1% to be announced tomorrow. Importantly, according to a German finance ministry official, Germany is not expected to post a second quarter of negative growth, thus avoiding a technical recession. The release of German GDP is likely to give a strong early lead (7am GMT) before the Eurozone-wide data at 10am GMT.
The GDP data could therefore be the catalyst for the next leg higher on the indices, or for a correction. The DAX has been consolidating now for the past couple of weeks. The key support remains at 9149 and a break below there would complete a top pattern that would imply downside of over 300 ticks.
EUR/USD has also been consolidating now for the past few days. The converging trend lines have formed a symmetrical triangle. Intraday hourly moving averages are all flat and momentum indicators (RSI and MACD) are neutral. Resistance is in place around $1.2500, with support at $1.2393. The battle lines are drawn. All we need now is the catalyst for a breakout. The markets are waiting for Eurozone GDP.