Last week’s plunge in commodity prices has continued in Asia this morning but continues to be largely ignored by equity markets, despite growing evidence that economic growth is likely to continue to disappoint on the downside. Weaker than expected US retail sales and confidence data on Friday saw Brent oil prices drop to nine month lows, copper prices drop $9, while gold prices collapsed to June 2011 levels as fears about inflation ebb away, despite large scale stimulus measures from central banks around the world. Despite this bleak demand outlook European markets have to date held up fairly well, however this could well change at the start of another potentially busy week after Chinese economic data came in worse than expected. Last week we saw data showing that Chinese imports jumped sharply in February which raised hopes that the Chinese economy was showing a significant recovery after its slowdown in recent quarters. These hopes look to be somewhat misplaced after both GDP and industrial production came in well below expectations, though retail sales did improve slightly. The latest annualised Q1 GDP numbers show growth of 7.7%, missing expectations of a rise to 8% and a fall from 7.9%, while industrial production in March fell from 9.9% to 8.9% missing expectations of a rise to 10.1% Retail sales for March did show a rise coming in at 12.4%, up from 12.3% the previous month. Events in the periphery are also likely to continue to keep investors cautious as Cyprus continues its weekly softening of the recently imposed capital controls. Events out of Dublin at the weekend European finance ministers could well impact banking stocks this morning after German finance minister Schaueble suggested that any move to banking union would likely require some form of treaty change. If Germany has moved to this position then any prospect of shared liability of any kind is likely to take years to achieve, and as such any effective framework for a resolution mechanism originally envisaged for 2014 looks increasingly like an optimists pipedream. With the G20 due to meet at the end of this week in Washington the recent sharp decline in the yen is likely to be a hot topic for conversation amongst the various parties in light of the recently aggressive monetary easing from the Bank of Japan recently which caught markets slightly off guard and saw the yen almost reach the 100 level against the US dollar for the first time since 2007. In a sign that US officials are a little worried about the recent yen weakness the US Treasury warned Japanese officials about actively trying to weaken its currency saying it will closely monitor Japanese policies and the extent that they support domestic growth. In comments last week Bank of Japan Governor Kuroda was at pains to reassure Japan’s trading partners that they were not looking to adopt a beggar thy neighbour attitude with respect to his country’s exchange rate, a point he is likely to repeat today ahead of this week’s G20 summit in Washington. The latest industrial production data for February showed a rise of 0.6% in contrast to January’s 0.1% decline. It is also set to be a busy week for the UK and sterling, given the recovery seem in recent weeks on reduced near term central bank easing concerns, and slightly better than expected Q1 economic data. This week sees the latest inflation numbers, as well as the latest minutes from the Bank of England, the unemployment numbers and March retail sales numbers which could well take a hit after the unseasonably cold weather spell. In light of recent economic data from the US the latest Empire manufacturing survey for April will be assessed closely for any improvements on last months 9.2 reading. Expectations are for a reading of 7.2 reinforcing the notion that the US economic may well be hitting a slight dip as some of the sequester cuts start to bite. Irrespective of the economic data investors are set to continue to focus on the latest profits numbers as the latest company earnings continue to take centre stage. EURUSD – the confluence of resistance levels between 1.3130 and 1.3150 continues to cap the upside here with the 100 day MA as well as the February highs at 1.3160 remaining the main obstacle to a move towards 1.3235 which is a 50% retracement of the 1.3710/1.2755 down move. Only a move back below 1.3000 retargets the 200 day MA at 1.2875 The key question now is whether the bullish engulfing candle seen two weeks ago validates a move for a squeeze higher in the longer term. GBPUSD – the failure last week to get above the 1.5420 level and 38.2% retracement of the 1.6370/1.4835 down move leaves the pound vulnerable to a fall back towards 1.5270 as well as trend line support from the lows at 1.4835 at 1.5120. Only a move below this month’s low at 1.5035 negates this view and targets 1.4920. A move beyond 1.5420 has the potential to target 1.5600. EURGBP – back above the 200 week MA at 0.8520 once more but still needs to take out resistance at 0.8580 to validate a move higher. The main resistance remains into the March gap between 0.8580 and 0.8605. A weekly close below 0.8520 shifts the focus back towards a move towards 0.8420 and this month’s low. USDJPY – a high of 99.95 last week keeps the US dollar below the psychologically important100 level with a successful test of the 50% retracement of the 124.15/75.30 down move at 99.75. Only a break through 100 would then target 105.50 the 61.8% retracement of the same move. Trying to pick a dip will be the challenge here after last week’s surge higher. We could fall all the way back towards 96.70 which were the March highs on a failure at the 100 level.


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