Stock markets continued their recent rollercoaster ride yesterday with European markets shrugging off the departure of Gary Cohn, President Trump’s chief economic advisor, despite the fact that it would appear to make the prospect of tariffs almost inevitable. The nuts and bolts of it are likely to be key with US stock markets falling sharply on the open, and only recovering into the close last night on reports that Canada and Mexico could well get exemptions.

We should get the final details in the next day or so with reports that President Trump will announce the details either today or tomorrow, while markets will also be paying attention as to who will replace Mr Cohn. There were concerns that Peter Navarro, one of President Trump’s more hawkish trade advisors might be in the frame for the role, however he appeared to rule himself out yesterday.

It is still hard to avoid the sense that markets are underestimating the prospect that this could all blow up into one big mess, particularly since the departure of Mr Cohn would appear to suggest that he was losing the argument on trade policy, and that steel and aluminium tariffs are merely the warm up act, for additional policy measures. This morning’s Chinese trade data are only likely to reinforce the US administration’s perception of unfair trade as Chinese exports were seen to show a rise 44.5% in February, the best performance in over two years. Rather than show that the global economy appears to be in fairly good health, they are likely to be used as further evidence by President Trump’s trade hawks that his current policy is appropriate.

Yesterday’s ADP report would appear to point to a US labour market which as yet doesn’t appear to be that tight in terms of adding new jobs. The fact that the US economy can continue to add over 200k jobs a month even at this advanced stage of the economic cycle would appear to suggest that the US economy still has an element of slack in it, despite evidence of some skills shortages.

The latest economic survey from the Fed’s Beige Book does appear to suggest that wage pressure is starting to grow with some moderate inflationary pressure becoming evident, and in so doing pointing to the likelihood that we’ll see further rate rises from the US central bank in the coming months starting this month, the only question being as to how many we’ll see this year.

There won’t be any such speculation surrounding today’s European Central Bank rate meeting with rates set to remain unchanged along with the continuation of the bond buying program.

The main focus of the market is set to be on the latest staff projections, which aren’t likely to change that much, and the press conference Q&A with ECB President Mario Draghi and whether he will offer clues as to what might happen after September this year when the current bond buying program is expected to come to an end.

A number of policymakers on the governing council favour a sudden stop to the €30bn monthly asset purchase program in the aftermath of that date, while some favour a change to the wording with respect to downside risks to the economy.

If anything the ECB could be facing a bit of a problem in terms of its attempts to draw back from its easy monetary policy, particularly since the data isn’t moving its way. Inflation is falling back, with headline CPI at a one year low, the euro is rising and some of the recent data has been slightly softer of late, and that’s before we even start to look at the current backdrop of Italian politics.

Mr Draghi is also likely to face questions on recent stock market volatility and the prospect of a trade war.

EURUSD – the break above 1.2370 has seen us edge higher with the next resistance back near the recent highs above the 1.2500 area. The 1.2360 level should now act as support with a move below retargeting the 1.2250 area.

GBPUSD – has continued to remain fairly well supported with the 1.3980 level the next key resistance and obstacle to a move towards 1.4200. If we drift back down the 1.3820 level is likely to be support while below that we have last week’s lows near 1.3710.

EURGBP – pushed above the 0.8950 level yesterday touching 0.8968 but weren’t able to consolidate the gains and slipped back down. This area remains a key resistance area, which while it holds could prompt a return to the 0.8870 level, with a break retargeting the 0.8810 area.

USDJPY – still finding support near the 105.20 area with a move back through the 106.30 area arguing for a move back to the 107.20 level. A move below 105.00 targets the 100.00 area. We need to move above the 108.30 area to stabilise.

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