European markets underwent a quiet session yesterday ahead of last night's final face-off between French presidential candidates Marine Le Pen and Emmanuel Macron. 

With Macron well ahead in the polls it was always his to lose, and as there weren’t any surprises it suggests that Macron will become the next president of France this weekend, as most people are anticipating.

As expected the US Federal Reserve left rates unchanged yesterday, but that wasn’t what the market was interested in. Given the softness in some of the recent US data, markets were looking for clues as to whether there was any doubt as to the strength of the US economy after a surprisingly weak Q1 GDP number last week. Unsurprisingly, the committee did express some misgivings about recent data but that they expected it to be transitory in nature and that the US economy would grow in line with expectations of 2.1%.

The lack of any concern from Fed officials about the recent slowdown was taken by investors as evidence that the Fed was still on course to push rates up in June, however it was never likely that Fed policymakers would have taken the option off the table in any case.

The relatively neutral stance was to be expected and makes the prospect of a move in June, no more likely than it was before, despite the rebound in banking stocks as well as the US dollar in the aftermath of the announcement.

Attention will inevitably shift towards tomorrow’s payrolls numbers, as well as the latest wages numbers for evidence of a tightening in the labour market and upward pressure on wages in the wake of recent weaker than expected personal spending and inflation data.

As for today, attention turns to the strength of the services sector in Europe and the UK after some solid manufacturing reports earlier this week.

The pound slipped back yesterday in the wake of the rebound in the US dollar as well some profit taking after more nonsense posturing from politicians from both sides of the channel as they staked out their respective positions on the upcoming Brexit negotiations.

This week’s UK data has showed evidence of a decent pickup in economic activity after a bit of a slowdown in Q1, and today’s April services PMI should complete the picture of a solid April performance, after manufacturing and construction beat expectations by bouncing back strongly.

It is predicted that we could see a bit of a slowdown from March’s 55 to 54.6, but given that these predictions have been wrong twice this week it wouldn’t surprise to see an upside surprise.

We will also get to see the latest lending data for March, which is expected to reflect the slowdown in consumer spending as well as the housing market.

In Europe we’ve also seen some decent numbers and this trend looks likely to continue with the release of services PMI’s for Spain, Italy, France and Germany which are expected to show improvements to 57.7, 53.7, 57.7 and 54.7 respectively.

Forex snapshot

EUR/USD – currently unable to consolidate a move through 1.0950 which could precipitate a move back towards the 200 day MA and 1.0820 area. While we hold above here the prospect of further gains towards 1.1000 remains.

GBP/USD – having been unable to push up to the 1.3000 area we could see a move down through 1.2850 towards the 1.2750 area, before another attempt to push higher. Only a move below 1.2750 argues potentially back towards the 1.2600 area.

EUR/GBP – could see a move back through the 0.8480 are towards broader resistance at the 0.8570/80 area where the 50, 100 and 200 day MA’s converge on each other. Solid support remains near the 0.8410 area.

USD/JPY – looks to be on course to test trend line resistance from the highs this year which comes in at 113.10, with additional resistance also around the 112.90 area, a break of which could well see a test of the March highs around 115.00. A failure to overcome the 113.00 area is likely to see a move back towards 111.50.

 

Heightened market volatility is likely over the election period, this could result in widened spreads. We recommend that you monitor positions carefully, consider the use of appropriate risk management tools and maintain a sufficient account surplus throughout this period.

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