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Europe set for a subdued start; Bank of Japan unchanged

European markets had a rather uneventful start to the week, after last week’s declines, edging slightly higher on what looks set to be a busy few days on the earnings front, which started with Tesla’s numbers after the bell last night.

US markets picked up from a solid end to the week on Friday with another positive session yesterday, though the Dow lagged behind a much stronger performance from the likes of the Nasdaq, which hit a record close, and the Russell 2000, which both posted strong gains.

We saw strong performance from the likes of the travel and leisure sector yesterday, with airlines doing particularly well, on reports that a limited transatlantic route could open up for US tourists who have been vaccinated to be allowed to travel to the UK and Europe.  

The resilience of equity markets, particularly in the US is in marked contrast to rising concerns about the situation in India which is looking absolutely horrific, and is likely to get a lot worse before it gets better, the consequences of which could well ripple out beyond India’s borders.

Oil prices slipped back for that very reason as concerns about demand from the world’s third biggest consumer caused prices to slip back from Friday’s peaks.

While oil prices slipped back the price of other commodities has remained resilient, with the Refinitiv CoreCommodity CRB index at a 30-month high, and which has almost doubled in value in the last 12 months, as sharp rises in wheat, corn and soybean prices added to recent anxiety about inflation pressures.

In spite of the strong finish for US markets yesterday and a subdued Asia session, today’s European open looks set to be another subdued one as the latest Federal Reserve meeting gets under way, with little expectation of any distinct change of tone from what we saw in March, with the US dollar expected to come under further pressure in the short term.

The Bank of Japan left monetary policy unchanged, while nudging up its growth forecast for 2021 to 4%, from 3.9%, in spite of concerns of a double dip recession as a consequence of the recent new restrictions that have been imposed as a result of a rise on coronavirus cases in certain areas of the country

EUR/USD – squeezed up to the 1.2120 area, which also coincides with trend line resistance from the January peaks at 1.2350. A breakthrough opens up the prospect of a move back to those peaks. While below the risk is for a drift back down to the 1.1980 area.

GBP/USD – the 1.4020 area remains a key barrier to a move back to the February peaks. We have support at the 1.3820 area, and below that at the 1.3760 area.

EUR/GBP – the 0.8730 area remains a key resistance level, a break of which opens up the 0.8820 level. While below 0.8730 the bias remains for a move back to the lows last week at 0.8630.

USD/JPY – trend line support from the January lows continues to keep a floor under the yen. Support now comes in at the 107.80 level, with resistance at the 108.30 level. Below 107.60 opens up the prospect of a move back to the 106.80 area.

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