European markets got off to a poor start to the week yesterday, slipping to seven week lows, with investors once again reluctant to try their luck against a backdrop of rising political risk, on both sides of the Atlantic.

While US President Trump has extended his one man crusade to the US court system, after his travel ban was overturned, any notion of a more stable political outlook in Europe took another twist over the weekend, as a narrowing of opinion polls in Germany, cast doubt on Angela Merkel remaining as Chancellor later this year, while Marine Le Pen launched her bid for the French Presidency as well.

Against this backdrop it was perhaps no surprise that European markets slid back sharply with the Italian FTSEMib sliding the most after Unicredit’s €13bn capital rising got off to a rather inauspicious start, as the shares slid nearly 7% on the day to close at their lowest levels this year.

As an exercise in confidence building the sharp slide in the share price isn’t exactly a ringing endorsement, however it’s hard not to be sceptical, given that we’ve been here three times before in terms of cash calls since 2012 to the tune of €14bn, money that has all gone.

Other bank shares, which enjoyed a decent pop on Friday on the news that the Dodd Frank regulation would be subject to review, also slipped back as investors took a colder look at what was announced on Friday. While some could argue that a lot of the Volcker Rule and Dodd Frank could do with some fine tuning, it’s asking a lot to believe that all of it will be rolled back. There are probably enough people on both sides of the political divide of Republicans and Democrats, who will be reluctant to roll back the progress made on making the banking system safer since 2008.

As is normal against an uncertain political backdrop gold prices have spent the last few days edging higher, hitting a two month high yesterday, on a combination of diminishing prospects of an imminent Fed rate hike, and rising political uncertainty in Europe and the US.

The rise in gold prices was also helped by comments from ECB President Mario Draghi in a speech to the European parliament where he insisted that the ECB remained committed to its current policy path, and that now was not the time to rein back on the current easy monetary policy, and would look through what it considers transient factors.

The main focus today as European markets look to open slightly lower is the latest US December trade numbers for December which are expected to show a deficit of $45bn. Given the propensity for Donald Trump to tweet about how US economic data has been when it’s been good, it’s quite likely that we could see some comments about the size of the deficit, particularly in relation to recent comments that have been made about surplus countries like Germany, and China, whose numbers are out later this week.

EURUSD – while support around the 1.0720 level holds the uptrend from the recent lows remains intact. We need to see a move above 1.0830 to argue for a move towards 1.1000. A move below 1.0700 runs the risk of a move towards the 50 day MA at 1.0580.

GBPUSD – currently finding support near the 1.2410 area, and 50 day MA, and this needs to hold to argue a move towards 1.2800. A move below 1.2400 would argue for a return to the 1.2250 area.

EURGBP – currently ranging between resistance at the 0.8650 area and support just below the 0.8570/80 area. A move through resistance argues for a move towards 0.8700. A move below the 0.8570/80 area argues for a return to the 0.8470 area.

USDJPY – the US dollar’s key support at 112.00 gave way yesterday opening up the road towards the 110.00 level. The key resistance remains back up near the 114.30 level. To stabilise we need to get back above the 114.30 area or run the risk of a deeper move towards 111.00.

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