Even though we managed to post a marginal new record high for the S&P500, we weren’t able to close the day higher though the Nasdaq continues to defy gravity.

As for markets in Europe, the FTSE100 also made new record highs, closing well above the 7,500 level while markets in the rest of Europe trod water. There remains a concern however that the what is going on in Washington will prove too much of a distraction to the US administration as yet another story breaks about presidential interference, this time in the FBI investigation into Michael Flynn, the US Presidents former National Security Advisor. As a result we could well see little in the way of anything tangible in the way of reform, tax cuts or infrastructure projects away from all the firefighting by White House officials.

The pound had a bit of a rough day yesterday, even if it managed to hold its own against the US dollar, despite the latest inflation numbers coming in slightly ahead of expectations at 2.7%, while core prices also moved higher to 2.4%, with a large part of the rise driven by a rise in airfares.

Even allowing for the fact that the Bank of England is likely to look through this rise in prices, the fact that some officials on the MPC have limited tolerance for higher prices is likely to spice up the debate about the wisdom of keeping rates at their current low levels, particularly given the fact that last August’s rate cut may well have exacerbated the effects of what we are seeing now, in terms of rising inflation. There was a silver lining though given that input prices do appear to be starting come back down albeit from quite high levels.

While prices continue to edge higher it is therefore equally important that wages don’t lag too far behind and today’s wages data should give an important insight into that. In last month’s data, average earnings in the 3 months to February rose 2.3%, and it is expected that the March numbers will see a move up to 2.4%. The ILO unemployment rate for the same period is expected to remain steady, at 4.7%.

The euro also enjoyed a fairly decent day yesterday, particularly against the US dollar which has continued to come under pressure as result of falling expectations that we’ll see any significant reflationary impact from the new US administration in terms of fulfilling their promises to cut taxes, and embark on an infrastructure program. While recent US economic data has been a little on the soft side there is also the fact that President Trump seems intent on starting fires either with the media or within his own party. These distractions appear to be weighing on the US dollar as market dial back on rate rise expectations.

This dialling back of expectations comes at a time when recent economic data is improving and inflation is starting to return and today’s final CPI number for April is expected to be confirmed at 1.9%, with core prices at 1.2%. This improvement if sustained, is likely to make it much harder for the ECB to justify keeping its foot hard on the gas with respect to its current stimulus plan.

EURUSD – having broken through the 1.1000 area we look set for a move towards the 1.1200 area in the short term. If we fall back below the 1.1020 area then we could see a sharp move back to the 1.0950 area. Key support remains back near the 200 day MA at 1.0820.

GBPUSD – despite pushing up to 1.2957 yesterday the pound slipped back, but crucially held above the support area above last week’s lows at 1.2820, and while we do so the bias remains towards the 1.3000 area. This remains the next key hurdle to overcome for a move towards 1.3300. Only a move below 1.2750 argues potentially back towards the 1.2600 area.

EURGBP – yesterday’s move through the 0.8520 area ran out of steam just below the 0.8600 area and the 200 day MA. While this level caps then the bias remains for a move back down again. If we managed to move through here we could well see a move towards levels last seen at the end of March at 0.8750.

USDJPY – having held below the 114.00 area yesterday the bias remains towards the downside and the 112.40 area, after last week’s bearish engulfing candle up at the 114.40 area. Further declines on a break of 112.40 could see a move towards 111.60.

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