European markets look set for a mixed open as bank stocks on the continent struggle following minutes of the last ECB meeting whilst bid speculation in the pharmaceutical sector has helped UK stocks outperform. There was a weak lead overnight as shares in Asia slumped and stocks in the US had their worst drop in nearly two months.

A sharp appreciation of the Japanese yen, back to levels last seen in October 2014 could see the Nikkei slump by 3% this week. More worryingly for investors in Europe and the US, there is a strong historical correlation between USD/JPY and the S&P 500. The correlation is broken at the moment since the S&P has remained near its highs whilst the yen has appreciated. For the two markets to come back into line; the yen needs to snap back or stocks need to fall further.

Whilst the Japanese yen is grabbing the headlines, the euro is sitting at the top of its trading range to the dollar over the past year for the same reasons. The BOJ and ECB have effectively run out of ammunition to depreciate their currencies to try and stimulate some so-far non-existent inflation. If the ECB and BOJ choose to fight back, it seems “helicopter money” might be the only option left.

The euro has come off its highs whilst bank stocks fell yesterday after the ECB minutes appeared to leave the door open to further negative interest rates, despite fears from some members about the adverse impacts on bank profitability.

The threat of Britain leaving Europe and its negative impact on the British pound has played its part in undermining efforts to devalue the yen and euro. PM David Cameron’s hypocrisy in gaining from an offshore fund whilst denouncing tax evasion only adds to chances of a Brexit if enraged UK voters use it as a chance to punish him.

Data released on Friday is forecast to show UK manufacturing production fell -0.2% m/m in March whilst industrial production growth is expected to moderate to 0.1%. The Fed’s Bill Dudley speaks this afternoon.


EURUSD – After surging last week, the euro has come off its high of 1.1460 this week which matches previous peaks from May 2015 and September 2015. For the time being the pair remains within its long-term trading range of 1.05-1.15.

GBPUSD – The pound dropped again on Thursday but remained above the low of Wednesday’s hammer-like daily reversal. Bias remains with long-term downtrend but another short-squeeze is possible while near 1.40.

EURGBP – At current levels the euro-sterling pair faces resistance from the 0.81 handle, trendline resistance, a long-term pivot pivot near 0.8065 and the 61.8% Fibonacci retracement of the decline since August 2013.

USDJPY – Dollar-yen has hit a low beneath 1.08 and is due a correction of its short-term downtrend after falling sharply for five-days. However next major support lies around 1 053.


Equity market calls

FTSE100: to open 10 points higher at 6,146

DAX: to open 18 points lower at 9,512

CAC40: to open 4 points lower at 4,241


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