In the absence of European markets for the May Day bank holiday it was a fairly subdued session, with the FTSE 100 closing modestly higher yesterday, while US markets finished the day mixed, with the Nasdaq closing higher on the back of anticipation ahead of the release of Apple’s latest earnings update.

Apple’s numbers came in much better than had been feared, beating on profits and revenues though handset sales did come in below expectations. That hardly seemed to matter as revenue rose to $61.1 in Q2.

Fears about a slowdown in hand set sales due to slower chip sales from suppliers proved to be unfounded though it was notable that the average selling price for the number of handsets sold was below expectations at $728, suggesting that demand for the iPhone X wasn’t as strong as it could have been, with customers opting for cheaper models. More importantly sales in the services division also improved with revenue of $9.2bn from Apple Music, the App Store and Apple Pay services.

The company also announced a further $100bn share buyback, on top of the existing $210bn buyback, while also increasing its quarterly dividend to $0.73c a share.

In the last few days the move higher in the US dollar has started to accelerate in so much that it has now recovered its losses for the year to move into positive territory. It is quite likely that this move higher has got further to go in the medium term and today’s Fed meeting along with this week’s US payrolls report could well provide a further catalyst.

Expectations around the prospect for further US rate rises along with rising inflationary pressure is seeing funds flow back into the US currency at a time when yield expectations are rising relative to the rest of the world. Yesterday’s ISM manufacturing prices paid component rose again in April to 79.3, the highest level since the same month in 2011, despite a slowdown in the headline number, helping push US 2-year yields above 2.5% for the first time since 2008.

It is this concern around inflation and the robustness of the US economy that is likely to dominate when the Fed concludes its two-day meeting later today. It will offer policymakers a decent opportunity to critique the health of the US economy ahead of next month’s largely expected rise in interest rates. There hasn’t been anything in the recent data to suggest that the central bank will row back from market expectations that rates will rise next month for the second time this year, and for the fifth time since the beginning of last year. This afternoon’s ADP report for April is expected to show the jobs market remains resilient with expectations of 200k new jobs.

The rise in yields as well as the US dollar also suggests that markets are starting to price in the real prospect that rates could well rise four times by the end of 2018. With no press conference the tone of the statement is likely to be key, however it is by no means certain that US policymakers will want to boost expectations of four rate rises at this point in time, even if a June rate rise is more or less rubber stamped in the process.

The pound has continued to come under pressure after manufacturing PMI for April came in at a 17-month low of 53.9, as the resilience shown in Q1 starts to ebb a little. Consumer credit numbers for March also slowed sharply in a sign that consumers were less willing to borrow. Today’s construction PMI numbers for April are unlikely to improve the economic picture given the poor performance in Q1 which was largely down to the collapse of Carillion.

Having slipped below 50 in March to 47, with the bad weather also hindering the sector, we should still see a pickup back to 50.5, but it probably won’t be enough to change the calculus around the diminishing prospects of a rate rise next week, which have melted away faster than a snowflake in the desert. The turnaround in expectations has been so fast that it probably won’t be too long before we get some Bank of England officials making the case for a rate cut.

The return of European markets also sees the latest manufacturing PMI numbers for April from Spain, Italy, France and Germany and these are all expected to show further signs of softness from the numbers in March. Spain is expected to see a fall to 54.2, Italy to 54.4 and France and Germany 53.4 and 58.1.

We also get the latest flash EU Q1 GDP numbers which are expected to show a slowdown from 0.6% in Q4 to 0.4%.

EUR/USD – has fallen below the 200-day MA at 1.2015 opening up the prospect for further losses towards the 1.1800 level, as the topping pattern from 1.2150 continues to play out. Next support comes in at 1.1930. A move back above 1.2170 negates this break lower and argues for a move back to 1.2300.

GBP/USD – yesterday’s fall below the 1.3700 level now opens up a move towards the 200-day MA at 1.3520. We need a move back above the 1.3720 area to stabilise and target a return towards the 1.4020 area. 

EUR/GBP – still finding it difficult to move beyond the 0.8830 level. A move through here would target the 200-day MA at 0.8880. While below the 100-day MA we could drift back towards the 0.8750 and last week’s lows at 0.8680.

USD/JPY – continues to push higher with the next resistance up at the 200-day MA at 110.25, with trend line resistance at 110.50 behind that. Support remains back at the 108.70 area. A move beyond 110 50 opens up the 112.00 area.
 

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