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Euro pushes higher as traders mull ECB policy shift

US and European markets continued to build on their gains of this week yesterday, with the US in particular looking particularly strong after strong earnings from industrial bellwether Caterpillar, which blasted through expectations, while the Nasdaq Composite pushed through the 6,000 level for the first time led by the so called FANG stocks of Facebook, Amazon. Netflix and Google, as investors gear up for further earnings announcements later this week.

Combined with a building expectation that US President Trump is set to announce the framework for some significant tax reform later today, and a potentially easier political environment in Europe has pulled together the ingredients for further gains, as investors switch their attention back to central bank policy.

It was this focus on central bank policy that spurred a later rally in the euro yesterday on reports that European Central Bank sources see the scope for a potential change of tack on the policy front at the June meeting. It seems unlikely that there will be significant shift tomorrow given that the April meeting sits between the two French votes, and while it is likely that Macron will win the final French vote on Sunday week, it pays not to tempt fate too much, given the tentative missteps seen so far from the inexperienced Presidential candidate in the aftermath of last Sunday’s vote.

The ECB has already dialled back its bond purchase program this month to €60bn a month from €80bn, so any new moves remain highly unlikely in the short term, however Friday’s new flash EU CPI numbers could well reignite the tapering debate anew.

Away from Europe and back in the US the Canadian dollar has borne the brunt of a move by the US government to impose tariffs of up to 24% on Canadian softwood lumber importers, with the US government accusing the Canadian government of subsidising the industry, as markets fret about the potential for a trade war between two of North America’s biggest economies.

Having already picked a fight with Mexico over its car factories it appears that Mr Trump is now turning his attention to Canadian industries that he perceives have an unfair advantage over their US equivalents with the dairy and farming industry next in his cross hairs.

The US dollar index appears to be in the process of breaking down, hitting new five month lows, despite rising expectations of a US rate rise in June. Part of the reason for this could be down to a slightly less dovish outlook for both the European Central Bank and the Bank of England which is stabilising yield differentials in favour of the euro and the pound.

Oil prices have continued to struggle near recent range lows on the prospect of a continued rise in US rig counts offsetting the prospect that OPEC and non-OPEC members will agree to extend the output freeze when they meet in just over a months’ time. Another build in weekly inventories overnight, along with the return of Nigerian output coming back on line isn’t helping to support prices either.  

EURUSD – having held above the 1.0820 area earlier this week as well as the 200 day MA we look set to move higher, moving above the 1.0940 area and potentially closing in on the 1.1000 area, and towards the November peaks at 1.1300.

GBPUSD – while above the 1.2750 area the bias remains for a move back towards the highs last week just above 1.2900, and potentially higher towards 1.3000 and the 1.3300 area. A move below 1.2750 argues potentially back towards the 1.2600 area.

EURGBP – the break through the 0.8520 area has opened up the potential for a move towards the 0.8570/80 where the 50, 00 and 200 day MA’s converge on each other. Support remains back at the 0.8470 area as well as the 0.8430 area.

USDJPY – the move higher through the 110.60 area now opens up a move towards the 111.60 area. Below 109.20 argues for a move back towards 108.20

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