European and US stock markets rallied yesterday as the Huawei ban delay gave traders encouragement to buy equities. 

The breathing space in relation to the Huawei delay sent out a message that the US administration is willing to hold-off an intensifying the trade spat. President Trump doesn’t back down easily, but a window of opportunity has been left open, and we saw traders buy back into the market yesterday. Chip makes benefitted from the news, and they managed to claw back some of Monday’s losses. The recent developments in US-China trade relations, suggests that things won’t be back to normal anytime soon.

There was major excitement yesterday when there was speculation that Theresa May would announce a second referendum in relation to Brexit. Sterling jumped quickly on the chatter, and but after the Prime Minister made her speech, it became clear that a second referendum will only be offered if the withdrawal agreement is passed. Some MPs were quick to state they will won’t vote for the withdrawal agreement, and the pound gave up the gains that were made, and questions remained about the popularity of the proposal. Even if the agreement was accepted, Mrs May didn’t map out what the question would be in a second referendum.

Equity markets in Asia were mixed overnight as dealers remained cautious of the trade standoff between the US and China. Cui Tiankai, the Chinese ambassador to the US, claimed that China is ready for additional trade talks, meanwhile Washington DC said it is considering blacklisting five surveillance firms in China.  

Even though the pound saw a jump in volatility yesterday, the US dollar was the top performer. The greenback quickly recouped the bulk of its losses post the Brexit referendum frenzy Earlier in the session the US dollar index reached a level not seen since late April ,and the dollar’s appears to be resuming its wider upward move.

Gold paid the price for the dollar’s success as the inverse relationship between the two is alive and well. The metal dropped to its lowest level in over two weeks and should it beak below the April lows, it is likely to fall further.

Oil slipped back a bit a dealers banked some profits. Fears about supply levels still circulate. OPEC and some of their allies have hinted they are in favour of keeping up the production cuts, and the political standoff between US and Iran is getting worse. Last night, the American Petroleum Institute reported that US oil inventories grew by 2.4 million barrels. Today at 3.30pm (UK time) the Energy Information Administration will release the latest US oil and gasoline inventory data, and the consensus estimate is for a decline of 3 million barrels and a fall of 1.5 million barrels respectively.  

UK CPI will be announced at 9.30am (UK time) and the headline figure is tipped to jump up to 2.2% from 1.9%, and the core reading is predicted to creep higher to 1.9% from 1.8%. The core figure gives a better indication of actual demand, and should the headline number saw a surge, it is likely to be because of oil prices.  At the same time, the UK will post the latest PPI figures, and the headline and the core reports are tipped to be 4.5% and 2.2% respectively.

Canada will release the latest retail sales numbers at 1.30pm (UK time), and economists are expecting an increase of 1.1%, which would be an improvement on 0.8% growth in the previous report.

The Federal Reserve will release the minutes from the meeting at the beginning of the month. In early May, rates were left unchanged and the US central talked about solid growth and a strong jobs market, but it highlighted that inflation is below their 2% target. Overall, the Fed seem content to sit on their hands, and today’s update is likely be closely watched.

EUR/USD – has been broadly pushing lower since early January, and if the negative move continues it might target the 1.1000 area. Resistance might be found at 1.3220.  

GBP/USD – has been driving lower since mid-March, and if the bearish move continues it might encounter support at the 1.2600 region. The 200-day moving average at 1.2957, might act as resistance.

EUR/GBP – has rebounded for over two weeks, and a break above 0.8800, might bring 0.8939 into play. A move to the downside might bring the 50-day moving average at 0.8617 into play. 

USD/JPY – while it holds below the 100-day moving average at 110.50, its outlook should remain bearish, and support might be found at 108.50. A rally might target the 112.00 region.

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