Normal service was resumed to a certain extent yesterday as both the S&P500 and Nasdaq managed to close at new all-time highs, helped by a combination of some decent quarterly earnings reports and a sharp move higher in the basic resource sector, after President Trump signed an executive order to resurrect the construction of the Keystone XL and Dakota pipelines which would then bring oil from Alberta in Canada to Nebraska, where it would link up with another pipeline.
While the Dow lagged behind, sharp rises in copper, platinum, palladium and aluminium prices also helped lift sentiment surrounding the mining sector.
European markets also enjoyed a decent day helped by a slew of decent economic data, particularly out of France which saw some of the best economic activity since 2011, with both manufacturing and services combining to boost jobs growth, and after last night’s US gains this momentum looks set to be maintained.
The laggard was the FTSE100 which underperformed as result of a couple of big profit warnings from BT Group and Easyjet. The continued resilience of the pound hasn’t really helped either as it shrugged off the expected Supreme Court verdict that compels the Government to put the triggering of Article 50 to a parliamentary vote in both the House of Commons and House of Lords, finishing above 1.2500 against the US dollar for the second day in succession.
While politics is likely to continue to play an important part in how the pound performs in the next few days and weeks, the fact that we now have a greater degree of clarity about the Brexit destination has helped create a degree of certainty that was lacking a few days ago. A government bill outlining the legislation for triggering Article 50 is expected in the next few days.
Investors now appear more concerned about what new US President Trumps policies will do to the strength of the US dollar.
If investors thought the last few months for UK politics have been unpredictable then in President Trump they’re likely to get further unpredictability in spades, when it comes to US politics.
On the data front the latest German IFO business climate index is expected to show a slight improvement in January, though it was noticeable that the latest services PMI’s did show some weakness from the previous month, which might indicate a softening in some of the IFO components.
EURUSD – continues to find selling interest up near the 1.0770/80 area, but while above trend line support now at 1.0620 from the lows this year, the prospect of further gains towards 1.0850 remains a real possibility. A move below 1.0540 retargets the 1.0450 area.
GBPUSD – having broken above the 1.2420/30 area this now needs to hold to argue for a move through 1.2550 and on towards the 1.2800 level and December highs. A move below 1.2400 argues for a delay and a return to the 1.2250 area.
EURGBP – yesterday’s short squeeze ran out of steam at the 0.8650 area before slipping back. The bias remains for a move lower towards the 0.8480 area with a break below the 0.8570 area.
USDJPY – continues to drift back towards last week’s lows at 112.55. A move below 112.55 could well target a move towards 111.60. Any US dollar rebounds are likely to find selling interest around the 113.80 area.
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