The S&P futures sold off on Friday after Fitch lowered Spain's credit rating. However, losses in the EUR/USD and Cable were somewhat limited and both dollar pairs are still trading comfortable above their May lows. Hence, despite nervousness in the markets, U.S. equities and major dollar pairs have some near-term supports in play. The EU news wire is already getting active this week after France warned that keeping its AAA credit rating will be a tough task and require aggressive budget repairs.
Additionally, Germany said it is considering raising the VAT from 7% to 19% on some goods. Therefore, the theme of fiscal austerity continues and investors should keep in mind that the situation in the EU is still unstable. Meanwhile, markets have gotten off to a relatively quiet start the week, although the SCI did drop by 2.4% after rumors spread that the Chinese government wants to test some property taxes. Although it's unlikely this drop in the SCI will be mirrored by U.S. equities, the development is still noteworthy.
The U.S. has a banking holiday today, meaning the U.S. session could be choppy. However, markets should get more active during tomorrow's trading session with key Australia data on tap followed by and RBA rate decision. China will also print manufacturing PMI data and it will be interesting to see whether recent tightening in the property markets has had an impact on broad-based economic fundamentals. If so, we could expect U.S. markets to react negatively.
The UK and U.S. will also print their own manufacturing PMIs later in the day, meaning Tuesday could end up being a volatile session.
For the time being it seems 1100 will prove to be a key battleground as investors debate where to take their next leg.
Price: 1093
Resistances: 1098.22, 1103.46, 1115.42, 1122.15, 1131.12
Supports: 1084.76, 1078.78, 1070.56, 1061.59, 1054.86
Psychological: 1050, 1100, 1000
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