Yesterday proved to be a mixed day for equities with the Dow and Nasdaq hitting new record highs before slipping back, due to weaker energy prices, while the FTSE250 closed at a record high.

In Europe equity markets were equally divergent yesterday with both the DAX and FTSE100 finishing higher, while the CAC40 closed lower for the second day in succession, as concerns about a close French election kept investors on the back foot.

Greece’s finances also look set to make a comeback to the front pages of the business section again as fresh splits between the EU and IMF threaten to open a massive rift after the head of Eurogroup Jeroen Dijsselbloem criticised the IMF for being overly pessimistic about Greece's prospects, saying that Greece was making good progress. The IMF on the other hand disagrees and appears unwilling to throw more money at a problem with no end unless EU creditors look at debt forgiveness, given the unsustainability of the current debt trajectory. A fresh flare up in the Greek crisis is particularly difficult timing given the proximity of elections in Holland, France and Germany, and a €7bn debt repayment due in July.

Oil prices are likely to be in the spotlight today due to sharp declines in Asia overnight after US API inventories blew out to 14.2m barrels, one of the biggest inventory builds in US history, and well above the 2.5m build expected.

If today’s Cushing crude oil inventories are similarly strong, any hopes that OPEC producers had of $60 oil could quickly evaporate. It would appear that US producers, as it was expected they might be, are turning into OPEC’s biggest nightmare.

While it is widely acknowledged that Marine Le Pen probably won’t win the Presidency due to the way the electoral system is structured the prospect of a surprise in the era of Brexit and Trump is causing some hedging of bets, despite French finance minister Sapin’s insistence that Le Pen can never win the Presidency.

Currencies also took centre stage again yesterday with the US dollar continuing its rebound after some hawkish comments from new FOMC voting member and Philadelphia Fed President Patrick Harker, which kept open the option of a March rate rise. This apparent hawkishness is rather surprising, given last week’s rather weak wages data, but it was slightly offset by a more dovish intervention from the head of the Minneapolis Fed Neel Kashkari, another new FOMC voting member.

His comments that inflation expectations remain well anchored and that it is better to have a too easy policy than a too tight one was preferable, helped to pull the US dollar back off its intraday highs.

While it wasn’t a complete counterbalance to Harker’s comments what these comments tell us is that the Fed wants to keep its options open, and the markets honest. Markets were starting to price out the prospect of a move on rates in March and this sort of jawboning from Fed officials is an effective way of keeping the Fed’s options open, and markets on their toes. It would still be a surprise if the Fed were to move in March in the absence of any further detail from President Trump about his fiscal plans.

The pound also had a good day despite initially being the worst performer yesterday. The turnaround for sterling in the shape of comments from Monetary Policy Committee member Kristin Forbes, who has in the past been known to differ from her colleagues on policy. She was one of two dissenters on the MPC in August with respect to the additional QE.

What was surprising about her intervention yesterday was how soon it came after last week’s quarterly inflation report, where she deferred to her colleagues on the additional QE, despite reservations that inflation could become a problem in the coming months. Her comments also suggest the belief that a slightly tighter monetary policy would be unlikely to have a detrimental effect on the UK economy.

EURUSD – having seen support at the 1.0720 level give way the risk opens up for a move towards the 50 day MA at 1.0580. The 1.0720 area now becomes resistance and a barrier to a return to the 1.0800 area.

GBPUSD – the brief break below the 1.2410 area, and 50 day MA, yesterday turned out to be a big bear trap at 1.2350, as the subsequent rebound pulled us back through the 1.2500 area, keeping alive the prospect of a move towards 1.2800.

EURGBP – the failure to push back through the 0.8650 area has kept the pressure on the downside towards the 0.8470 area, after slipping below the 0.8570/80 area. A move through resistance argues for a move towards 0.8700.

USDJPY – has now found some support at the 111.60 area, however downside pressure for a move towards the 110.00 level remains while below the 113.00 area. 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 110.00.

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