The two-day rally in equities that saw multiple indices breakout to multi-week highs cooled on Thursday when bank and energy stocks lost their fizz. Spain’s Banco Popular and its €2.5bn rights issue was a reality-check for the banking sector and initial euphoria over oil topping $50 per barrel gave way to concern the price level may mark a near-term top.

Still, there was no big sell-off, stocks held onto strong gains from the past two days, ending Thursday unchanged. Equity investors appear to be cautiously upbeat ahead of a speech from Fed Chair Yellen at Harvard University and US GDP data, both of which are likely to impact the expected timing of any US rate rise.

The dollar dropped to its lowest in over a week on Thursday. The signs of dollar-weakness could be attributed to a suspicion that Ms Yellen won’t be quite as hawkish as her fellow Fed-speakers. Federal Reserve governor Jerome Powell yesterday said an interest rate hike could be appropriate ‘fairly soon,’ adding that Brexit does not pose a systematic risk – counter to the narrative of numerous other institutions. Yellen’s speech is likely to be a lot more nuanced and may not give the outright signal dollar-bulls are looking for, which is probably a positive for equities.

The dollar’s weakness also just reflects some renewed strength in the Japanese yen. US President Obama’s finger-wagging at Japan’s Prime Minister Abe during the G7 over competitive currency devaluations, removes some optionality for the Bank of Japan to intervene to weaken the yen.

The unconventional Donald Trump finally winning enough delegates to clinch the Republican nomination could, at the margins, be a source of caution. Still, donations from Wall Street are a good gauge of the market’s sentiment that the status quo will be maintained with Hillary Clinton. According to OpenSecrets.org, Mrs Clinton has taken $27m from Wall Street donors while Mr Trump picked up only $283k from finance industry.

EURUSD – The euro has found support at 1.1140, the low from March 24. Short term momentum is still lower but medium term the euro is trendless so with RSI nearing the 30 oversold level on the daily chart could be putting in an interim swing low.

GBPUSD – Cable is facing strong resistance at 1.47, failing on its third test this week. While below 1.47, the pound remains in a long term trading range with the possibility of drop towards 1.41. A break above 1.47, then the 200 DMA suggests it is entering a new uptrend.

EURGBP – The euro-pound pair has dropped beneath the neckline of its head and shoulders pattern around 0.77. The target for the pattern would be near 0.73 but former range resistance at 0.7485 could become support.

USDJPY – Dollar yen is attempting to reverse its downtrend with a break above 110, a down-sloping trendline connecting the March 10 and April 28 peaks and the 50 DMA. Assumption is for downtrend to continue.

Equity market calls

FTSE100: to open 1 point lower at 6,264

DAX: to open 17 points higher at 10,289

CAC40: to open 2 points higher at 4,514

 

 

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