European Markets Trade Lower After French Data

European markets are trading lower due to the weakness in French industrial production and French final private payroll data. Both of them missed the expectations. The French industrial production came in at 0.3 percent against a forecast of 0.5 percent while the French final private payroll (quarter on quarter) printed the reading of 0.2 percent while the forecast was 0.3 percent.

Investors are obsessed with easing monetary policy and they are hoping for coordinated action by central banks. The European central bank is going to take the stage on Thursday and they will be assessed not only about their tone towards the monetary policy but also the actions. And next week, we have the Federal Reserve gathering, the agenda among investors is going to be the same again.

On the Trade war front, Steven Mnuchin, the US Treasury Secretary, has assured the market that tremendous progress has been made between the US and China when it comes to a trade war. Again these are just empty words and market participants are tired of listening to them. The actual fact is that the progress has become immensely slow,

Two more defeats were handed out to British Prime Minister Boris Johnson by Parliament yesterday. The prime minister's bid for an early general election was voted down by the lawmakers and the results were this: there will be no snap election on October 15. The misery for Johnson didn't stop there, MPs went one step further, they pushed Boris Johnson to publish the documents in relation to all the preparation for a new deal Brexit.

Remember, the Prime Minister still believes that he can secure a deal with the EU leaders before the deadline and he is consistent with his approach of leaving the EU without any deal on October 31st. Nonetheless, his losses will stop piling up for the time being in the absence of parliament sessions. So, for the next few weeks, the prime minister's focus is going to be to secure a new deal with the EU.

From Sterling's perspective, the relief rally is likely to continue as the pair crossed the level of 1.2380 against the dollar today. The pound has gained whopping 3.43 percent since September 3rd when it made a low of 1.1959. I believe it is highly likely for Sterling to continue to move higher at least until the end of September. And yes, the volatility is also going to remain elevated. It is highly likely that investors may start to take the profit off the table by the end of this month while the Brexit clock continues ticking. In technical terms, this means that the price may target it's 100-day moving average on a daily time frame which is trading at 1.2536. For the record, the price has crossed above the 50-day moving average trading at 1.2293, this confirms that bears are losing control of the price action.

As for the oil market, the new oil minister over in Saudi Arabia has assured the market that OPEC and its allies are determined to keep the production in check. They will continue to do whatever it takes to prevent another oil glut. The WTI is on track for its fifth consecutive day of gains. and the next major hurdle for the price action is to cross above the level of $60, a key resistance level. Given the demand situation and the slowing global economy, it is difficult to knit a scenario which can back up the argument for a major rally in the oil price.

I believe the oil rally is way overextended and traders are going to start taking the profit off the table. This means a lower price and a move back towards the level of $55 or even lower. OPEC's monthly oil report which includes production estimates and demand forecast is due tomorrow and this could trigger the sell-off.

Chief Market Analyst

Naeem Aslam

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