European markets underwent a lacklustre session yesterday, while US markets pulled back from their intraday lows, as investors looked ahead to what is set to be an important week, not only for earnings with the start of US earnings season, but also central banks, with the ECB set to meet tomorrow and the latest Fed minutes due soon afterwards.

Asia markets have also undergone a lacklustre session, with markets in Europe set for a similarly weak start later this morning, as higher oil prices raised concerns about the prospect of weaker demand against a backdrop of a slowing global economy.  

The latest German trade data showed that the German economy slowed further in February as exports slid sharply, on a combination of concerns about Brexit, an economic slowdown in China, as well as trade war concerns.

Expectations that the German economy was only experiencing a soft patch at the end of 2018, appear to have morphed into bigger concerns that the slowdown in demand in the global economy is likely to be much more prolonged, with the EU’s biggest economy most exposed.

For a region that already has significant structural issues the current slowdown is likely to present further problems for the European Central Bank when it meets tomorrow for its latest policy decision. Already at the limits of its mandate, with core inflation only 0.2% away from record lows, and with interest rates sitting in negative territory, the best the ECB can do is keep rates where they already are for a very long time.

While the negotiations between the UK government and the opposition Labour party continue to go back and forth with little in the way of significant progress, the only one deadline that matters is the one at the end of this week, when the extended deadline for the UK to leave the EU runs out, on April 12th.

In the absence of an agreement between MPs any decision to extend the deadline remains very much in the hands of the European Union, irrespective of the progress of the so-called Cooper-Letwin bill, designed to prevent a no deal Brexit, which passed through the House of Lords last night, and then the House of Commons after being amended.

Tomorrow’s EU Council meeting is likely to be when we’ll find out whether EU leaders are minded to grant an extension, and for how long.

The pound had a mixed day yesterday, treading water as traders tried to cut through the political fog ahead of tomorrow’s EU summit. If EU leaders are minded to extend the deadline it will likely be a much longer one than the UK wants, and will be conditional on the UK taking part in European elections next month.

Preparations appear to be already being started in this respect and while it is not 100% certain that the EU will extend Friday’s deadline, the reality is that in the absence of the UK revoking article 50, or agreeing a deal, an extension seems almost inevitable.

The French government may be making noises about the prospect that an extension shouldn’t be taken for granted, but in reality, if they weren’t to allow one, then the resulting fallout would not only hit Ireland really hard, but also ripple back into the French economy, more or less tipping it into recession, as well as precipitating a full blown crisis across on an already structurally weak European economy. It would be foolhardy in the extreme, even if it might seem like good politics.

That being said given what we’ve seen over the last few years, good politics generally tends to lead to bad economic outcomes.

EURUSD – still have solid support at the 1.1180 area, with a break targeting the 1.1000 level. The current rebound could well see a run up to the 1.1340 area and 50-day MA. Upside likely to remain limited to the 200-day MA at 1.1460 if we move above the 50-day MA.

GBPUSD – the 200-day MA and 1.2960 area continues to act as solid support. Unlikely to move much beyond the 1.3170 area until we get a clearer political picture. Below 1.2960 opens up the 1.2800 area.

EURGBP – needs to push above the 0.8650 area to argue for a move towards the 0.8720 level. While below here the bias remains for a move back to the recent lows at 0.8500.

USDJPY &ndash struggled to move above the 112.00 last week, and while below the bias is for a move below the 111.20 area towards the 110.20 level.

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