After a brief pullback for US markets on Wednesday normal service was resumed with more record closes for US equity indices yesterday as investors shrugged off concerns about tighter central bank policy and warnings about trade tensions with respect to NAFTA.

Even bond markets which had been spooked by concerns over a possible buyers strike from China put those worries behind them after two successful auctions this week which showed a strong appetite for US debt, prompting yields to slip back from their weekly highs.

While US markets continued to “melt up” so to speak European markets had a disappointing session weighed down by some more hawkish than expected European Central Bank minutes which sent the euro back above the 1.2000 level against the US dollar, and the DAX and CAC 40 down for the second day in succession.

These December minutes showed that the governing council might be minded to consider a hawkish shift in guidance in 2018 if prices continue to show signs of pushing higher. Compared to previous meeting minutes this is a significant shift in tone, however given that prices haven’t shown any signs of rising and with core CPI prices slipping back below 1%, traders may be over interpreting the narrative. These minutes are a month old, and CPI has slipped back in the EU since then, which is likely to cause concern amongst the more dovish members of the council.

This could translate into a slightly less hawkish tone in the coming days given that yields have moved higher since then, along with the euro while inflation has edged lower.

This continued lack of inflationary pressure also manifested itself in yesterday’s latest US PPI numbers for December which showed a surprising fall from 3% to 2.6%, On a monthly basis we saw a decline of 0.1%, against an expectation of a rise of 0.1%, and this surprise miss undermined the US dollar once again sending it back towards its lows of this week.

If today’s US CPI numbers show a similarly weak tone questions may once again be asked as to the likely pace of US rate rises this year, as well as some puzzlement as to why recent sharp rises in oil and other commodity prices aren’t showing up in the headline rates. Expectations are for monthly CPI to come in at 0.1%, down from 0.4% in November while the annual rate is expected to show a drop to 2.1% from 2.2%.

Of more importance will be US retail sales for December after the strong performance in November of 0.8%, and the Black Friday effect. Can the momentum of this November number carry over to the Cyber Monday as well as the lead up to Christmas with another decent number? With wage growth in the US above the level of headline inflation you would like to think so and a number of 0.5% is expected. A half decent number here could well give the greenback a lift, after yesterday’s sharp fall.

Asia markets had a mixed end to the week with the Nikkei coming under pressure due to a strengthening yen, while the latest Chinese trade data showed that both imports and exports slowed in December, after a strong November.

Exports rose 10.9% in US dollar terms, down from 12.3% in November, while imports only rose 4.5%, down from 17.7%, nonetheless the export performance showed that the global economy appears to be performing well, however the increase in the surplus, particularly with the US is likely to garner attention particularly since US President Trump has accused China of unfair trade practices due to the US’s big deficit.

EURUSD – squeezed back through 1.2020 yesterday but remains below the highs of last year at 1.2095. This remains the key obstacle to further gains towards 1.2170 which is 50% retracement of the 1.3995/1.0340 down move, with 1.2600 behind that. Support remains back at 1.1910 and this week’s low.

GBPUSD – rebounded from the 1.3450 area yesterday but has so far been unable to retake the 1.3600 area which has capped the current rebound. We need to push through the 1.3660 area to open up a move beyond the 1.3700 area towards the 1.3830 level and February 2016 pre Brexit vote lows.

EURGBP – yesterday’s rebound was unable to push beyond the 100 day MA at 0.8915 and while below here the risk remains for a return to this week’s lows at 0.8805/10 and a return to the recent range lows at the 0.8740 area, with a close below targeting a move towards 0.8650.

USDJPY – while below the 112.00 area we remain at risk of a move towards the 110.80 level and November lows. We need a move back above 112.20 to target a retest of the 113.60 area. A move below 110.70 opens up a move towards 109.80.

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