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With the VIX languishing at multi year lows only a couple of days ago it was perhaps inevitable that the low volatility of the past few weeks would in all likelihood end rather abruptly, with the only unknown being as to what the catalyst might be.

As it turns out it was events in Washington DC that delivered investors the kick in their complacency that many had been warning about, as stock markets and the US dollar fell sharply, while safe haven assets like gold surged.

President Trump has enjoyed an almost Teflon like existence since being in the White House with markets prepared to give him the benefit of the doubt on a number of occasions despite his tendency to stagger from one controversy to another.

This latest one involving ex FBI head James Comey has sparked concerns that this could be Trump’s Watergate moment, with Democrat Congressman Al Green of the Democratic Party calling for his impeachment, for allegedly attempting to influence an ongoing FBI investigation.

Having waited months for evidence that we would eventually see something resembling a reform program and fiscal stimulus to justify the rally in the US dollar and stock markets since November, investors finally lost patience amid a selling frenzy with US markets posting their biggest one day loss since September last year.

The big question now is whether this turns out to be the start along a road to an impeachment process or whether this is another bump in the road

Depending on how events play out over the next few days that planned rate rise for the US Federal Reserve, which is due next month, might well have to be put firmly on the back burner. It is hard to envisage a scenario where the Fed would even consider raising rates at a time when there is so much political uncertainty.

As it is the slide in the US dollar and sharp decline in bond yields would appear to suggest that the market is also coming to that conclusion as well.

On the currency front the pound had a mixed day, falling sharply against the euro, and holding its ground against the US dollar. Yesterday’s wages data saw average earnings for the three months to March fall below the headline level of CPI for the first time since 2014, further exacerbating the income squeeze of the last few months. On the plus side employment levels hit a new record high while the unemployment rate hit a 42 year low at 4.6%.

This squeeze on incomes could well have implications for today’s UK April retail sales data which is due later this morning. In March retail sales slid 1.8%, rounding off a quarter that saw a net decline of -0.7% for Q1.

While March was a surprisingly bad month, it could merely been a case of consumers holding back ahead of Easter, as all the indicators seen in recent data from food retailers suggested that shoppers recovered some of their mojo in April. The latest BRC retail sales numbers from last week showed that, and today’s retail sales numbers are expected to show a rise of 1.2%.

The rise in the euro over the past few days is also likely to present a bit of a dilemma for the European Central Bank, given the likely negative effect it might have on inflation. Today’s speech by ECB President Draghi may prompt some jawboning in order to temper the current rise.

EURUSD – since last week’s low at 1.0840 the euro has gone parabolic breaking through 1.1000 and 1.1100 in short order to close in on the 1.1200 area which is the next target, and the November high at 1.1300. If we fall back below the 1.1020 area then we could see a sharp move back to the 1.0950 area.

GBPUSD – continues to struggle just below the 1.3000 area, with solid support above last week’s lows at 1.2820. We’ve also seen the pound put in a golden cross where the 50 day MA crosses above the 200 day MA, a typically bullish signal. The 1.3000 area 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 – having closed above the 0.8600 area and the 200 day MA, we could retest the 0 8720 area. Any pullbacks should find support at the 0.8540 area and the 50 day MA.

USDJPY – not only did we break below the 112.40 area but also fell below 111.60 with the prospect we could well see a move towards 110.20. Pullbacks should be confined to the 112.40 area.

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