The recent positive momentum of the past two weeks, which has seen some significant breaks higher in equity and commodity prices in recent days, appears to have given way to a slight shift in sentiment in the past couple of days.
It remains to be seen whether this slowdown in upward momentum has the potential to turn into something a little more tangible, or whether it is simply a little bit of caution ahead of this week’s big central bank meetings of the US Federal Reserve and the Bank of Japan. Yesterday’s weaker than expected German IFO business sentiment reading certainly didn’t help matters, particularly worries over exports which suggested concern over potential weakness in the US and China.
Oil prices have also stalled a little after their gains of the last three weeks, though they still appear to give the impression of remaining remarkably resilient, suggesting the potential for further gains.
The pound has continued its recent recovery encouraged by a slightly better than expected manufacturing survey from the CBI with order books showing some improvement in April. It would appear that despite Brexit concerns that the weaker pound has brought about some benefits, and there was more optimism that orders would pick up in the coming months, despite an uptick in input costs.
With the US Federal Reserve meeting set to get under way today yesterday’s latest US economic data didn’t really encourage those on the committee who feel that the time for another rate rise is coming closer.
If anything yesterday’s data reinforced the perception that aside from a fairly robust labour market, there remains little else about the US economy that would support a move on rates at this time or in the near future.
New home sales fell 1.5% in March missing expectations of a 1.6% rise, while the latest Dallas Fed manufacturing survey for April slipped back again, coming in at -13.9 following on from last week’s disappointing Philadelphia Fed reading, though new orders did show a rise of 6.2, while wages also improved.
The overall tone of yesterday’s report was of overriding pessimism from a good number of respondents, with one of the more notable comments being
“Politics. Gas. Oil. ISIS. This is not a good time to be in business.” Wow, there’s certainly no room for ambiguity there, which suggests that for all the hawkish comments from certain members of the FOMC a rate hike at this time is likely to be a hard sell for the foreseeable future.
The tone of a report like that does make you wonder what sort of economic environment Dallas Fed chief Rob Kaplan is looking at given his comments two weeks ago that he expects another rate rise in “the not too distant future”.
EUR/USD – have managed to find some support at 1.1220 but we need to push back through 1.1350 to suggest a return towards 1.1440, otherwise we could well slip back towards the 1.1140 area, the lows at the end of March. A move through here could well see a move back towards the 1.1030 area, with support also towards 1.0800.
GBP/USD – having managed to hold above 1.4400 yesterday the pound has managed to get above the 100 day MA and looks set to push on towards 1.4600, and 1.5000, with 1.4520 as interim resistance. Dips look set to remain well supported with only break below 1.4300 undermining the bullish scenario.
EUR/GBP – the weekly bearish engulfing pattern two weeks ago has seen the euro slide through the 0.7820 level closing back below the 200 week MA and targeting a potential further decline towards 0.7690 initially. Resistance now comes in at the 0.7820 level as well as 0.7860.
USD/JPY – yesterday’s failure at 111.80 has seen the US dollar slip back but we need to break back below the 110.20 area to suggest that we’ve seen a near term top. Otherwise we could well extend towards 112.75 and potential 113.50.
Equity market calls
FTSE100 is expected to open 12 points higher at 6,272
DAX is expected to open 21 points higher at 10,315
CAC40 is expected to open 4 points higher at 4,550
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