It was another poor day for European markets yesterday as the deadline for the increased China tariffs came ever closer, though US markets did close off their worst levels of the day on optimism that today’s deadline might be deferred.

Given the deadline has now passed there is the possibility that tariffs could still be avoided given that US officials allowed for goods currently in transit to be exempt from the new tariff increases, which means there is a potential window, albeit a limited one, for an agreement to be hammered out, after President Trump said that a deal still remained possible.

It is this hope that investors may well cling to as the tariff deadline passed earlier today, while China said it would take measures to retaliate in due course.

There is no doubt that the stakes have increased in the past few days, with not only these now new China tariffs, but also escalating tensions in the Persian Gulf, after the USS Abraham Lincoln carrier group sailed through the Suez Canal into the region.

The US also has to make a decision a week from now on whether to implement auto tariffs on imported cars from the EU, which is likely to be another factor that could weigh on the markets over the next few sessions. For now that it is a decision for next week, for the here and now investors want to see evidence of a softening of tone as Chinese and US officials sit down and move their positions back closer together.

As we head into the weekend and the end of a bad week for European markets, we still look set to see a positive open this morning after the late pullback in US markets, however any upside is likely to remain limited while the trade picture remains cloudy.

Concerns about trade are likely to impact this morning’s German trade numbers with exports for March expected to decline 0.4%, a slight improvement on February’s 1.3% decline, but still disappointing. Imports are expected to do slightly better at 0.3%, however the numbers are expected to paint a picture of a German economy experiencing a manufacturing recession.

The pound has undergone a difficult week, slipping back as it becomes increasingly clear that the talks between the Labour party and the government are going nowhere fast. The only thing keeping hope alive is that neither side wants to be seen to pull the plug on them completely quite yet.

As for as the economic data has been concerned the UK economy has almost ceased to matter in the context of how the pound has been performing. By and large it has continued to hold up fairly well, with today’s Q1 GDP expected to come in at 0.5% up from the previous 0.2%.

While this is likely to be well received the business investment numbers are once again expected to be the main focus with a decline of 0.9%, highlighting how damaging the current Brexit limbo is for businesses who want to plan for the future. 

Manufacturing and industrial production numbers for March are expected to slow from the strong numbers seen in February, coming in flat for both, while the trade deficit for March is expected to come in at -£4.6bn.

On the IPO front Uber is expected to price at the lower end of its price range at around $44 to $45 a share, giving it a valuation of about $80bn, a far cry from some of the speculation that put its valuation north of $100bn a few weeks ago.

Reality can be a tough companion and further declines in risk assets could see further weakness especially if investors start to ask tough questions about the likelihood of future profitability.

EURUSD – the 50-day MA appears to be containing the upside for now near 1.1270 with wider resistance at the 1.1325/40 area. The bias remains to the downside, and the lows at 1.1110, while below this key resistance level.

GBPUSD – support remains near the 1.2960/70 area. A break below 1.2960 and the 50-day MA could well open up a move towards the 1.2800 area. We need a move above 1.3070 to stabilise.

EURGBP – the recent range highs at 0.8680 remain a key resistance area. While below the risk is for a drift back down towards the 0.8570 area on a break below 0.8620.

USDJPY – still on course for the 109.20 area while below the 110.30 resistance. While below 110.30 the risk has shifted to the downside and an eventual move towards 108.00. Above 110.30 argues for a move back towards 111.00.

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