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New records for stocks, while sterling looks ahead to UK inflation

Not surprisingly cybersecurity stocks were popular yesterday in the wake of the “WannaCry” hack and are probably likely to remain so with UK based Sophos hitting new record highs yesterday along with the FTSE100.

We’ve heard so much in recent years about the risks of viruses and phishing attacks that little attention has been given to more sophisticated attacks from malware or ransomware, and this new awareness is likely to prompt increased spending by governments and corporations on the latest upgrades and software solutions from companies like Apple and Microsoft, as well as potentially open source solutions like Ubuntu or Linux.

Not to be outdone on the records front the German DAX and the S&P500 also closed at new record highs, with energy and tech stocks driving the move higher in a slow and steady fashion.

The unexpected agreement by Russian and Saudi officials on extending the output freeze into 2018 certainly caught the market on the hop, however with an OPEC meeting only nine days away there was probably no better time for oil ministers to try and put a floor under prices and raise expectations. We shall see if the deal they come up with passes muster or whether it merely helps US shale producers to up their output even further.

On the data front today the pound is set to take centre stage with the latest CPI inflation data for April, and if what we saw in the most recent EU CPI numbers is replicated in any way shape of form we could well see a sharp rise from March’s 2.3%.

It is expected that we could get a jump to 2.6%, while core prices could also jump above the 2% level, from 1.8% to 2.2%. If we do indeed get a sharp jump in CPI then it is likely to increase the prospect of further splits on the Bank of England monetary policy committee, with Michael Saunders and Ian McCafferty the two most likely to break ranks, and push for a rise in rates.

McCafferty could break ranks because he’s got previous having called for rate hikes on two previous occasions, and Saunders given his recent comments to small businesses last month. RPI is expected to rise to 3.4% from 3.1%.

While a strong number won’t mean we’ll get a rate rise anytime soon, what it would do is pull back in rate rise expectations back in from 2019, where they are now, to slightly sooner, which in turn could prompt a retest of the $1.3000 area, while a weaker number could well see us head back down to last week’s lows at $1.2820.

Also on the agenda is the latest EU flash Q1 GDP which is expected to come in at 0.5%, driven primarily by a strong performance from the German and Spanish economies which performed well in the first quarter, up 0.6% and 0.8% respectively.

EURUSD – having another attempt at the 1.1000 area, if we get a foothold we can head up to 1.1200. While below the risk remains for continued range trading with support at the 1.0820 area, 200 day MA. A move back below 1.0800 could well see further losses towards 1.0640, thus filling the gap higher seen at the beginning of April.

GBPUSD – currently holding above last week’s lows at 1.2820, and while we do so the bias remains towards the 1.3000 area. This remains the next key hurdle to overcome for a move towards 1.3300. Only a move below 1.2750 argues potentially back towards the 1.2600 area.

EURGBP – unexpectedly broke through the 0.8470 area and look to be heading higher towards 0.8520 initially. A move through here has the potential to push up to 0.8570. The 0.8470 area now becomes a key support area.

USDJPY – a bearish engulfing candle up around the 114.40 area has seen the US dollar slip back. The 113.00 area has managed to hold on the pullback, and we now need to hold below the 114.00 area to retarget 113.00 and a move back towards 112.40.

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