How quickly markets forget as after a poor start at the beginning of May due to weak manufacturing data from China, the UK as well as the US, downgraded forecasts for UK and Eurozone growth, and weak investment bank earnings saw markets slide back sharply.

As we head into June all those woes appear to be forgotten as we look towards not only a big week for event risk but also a big month, as we look towards a raft of economic announcements, an OPEC meeting, an ECB meeting and the US employment report this week.

US markets continued to go from strength to strength last week posting their best week since March, despite speculation that the Federal Reserve might be on the cusp of another rate rise.

Last week’s minor upgrade to US Q1 GDP along with some improvement in some of the headline data doesn’t appear to have shaken investors out of their ambivalence to the prospect of a US rate rise in June. If anything remarks made by Federal Reserve Chair Janet Yellen would appear to have reinforced that lack of expectation given her comments that a rate rise might be appropriate in the coming months. At first glance it could be argued that these remarks could be construed as “hawkish”, but they aren’t anywhere near the sort of tone we’ve heard in recent weeks from various non-voting members of the FOMC, though James Bullard of the St. Louis Fed did suggest that markets were “well prepared” for a hike fairly soon in remarks made yesterday.

If anything the nuanced nature of the remarks suggest that the Fed chief is keeping her options very much open, ahead of another speech on the 6th June, post payrolls data, and is in no rush to push rates higher given some of the sustained weakness being seen in the manufacturing sector. While last week’s durable goods saw a big jump in the headline rate this was hugely skewed by a 65% rise in aircraft orders. On the consumer side we saw yet another weak reading, a trend that has been prevalent for over 12 months.

Market expectations around a move in June still remain on the low side at about 30%, while US 2 year treasury yields sit well below their March highs of 0.955%, suggesting the belief that for all its current bravado the Fed may not have enough hard data to pull the trigger in June, particularly with the UK referendum vote eight days later.

These expectations might change over the course of the week given the amount of data that is due out starting today with inflation and consumption data, culminating in Friday’s May payrolls report.

April personal spending is expected to jump from a disappointing 0.1% in March to 0.6%, but more importantly April PCE inflation, the Fed’s preferred inflation measure is expected to rise 1.6%, unchanged from the previous month. As long as these numbers remain fairly well underpinned concerns about deflation are likely to continue to diminish, amongst the more dovish members of the FOMC.

The latest Chicago manufacturing PMI for May is expected to show a modest improvement to 51, however given the weakness of recent regional readings this could well see a downside surprise.

On the other hand deflation concerns have been diminishing for some weeks now, aided by a significant rebound in oil prices over the past three months to their highest levels since November last year.

This rebound in inflation expectations is likely to play into this week’s ECB rate meeting due on Thursday and as a result we could see an uplift to the ECB’s inflation forecasts for the remainder of this year. This is likely to put back the expectation of further easing measures in the near term, and could well make it difficult for the ECB President to be particularly dovish despite still weak inflation readings from the southern parts of Europe.

With OPEC also meeting later this week, the same day as the ECB, there is little expectation that oil ministers are likely to come to any agreement on production quotas or freezes, however that scarcely matters given the current direction of travel for oil which currently looks well supported just below the $50 a barrel level.

Today’s EU inflation numbers for May are expected to show that core prices remained steady at 0.7%, while the headline number is expected to nudge up to -0.1%, from -0.2%. EU unemployment is expected to remain steady at 10.2% in April.

EURUSD – continues to come under pressure with support near the 200 day MA at 1.1100, as well as trend line support at 1.1040 from the December lows. While above these key levels the current uptrend should remain intact with a move back through 1.1250 needed to stabilise, and point the way to a return to the 1.1400 area.

GBPUSD – has struggled to gain traction near the 1.4700 area which isn’t too surprising given the various resistance levels there. We have the 200 day MA and the previous highs both sitting at the 1.4780 level, as we look to kick on towards 1.5000. As long as we stay above last week’s lows at 1.4420 the uptrend looks set to remain intact.

EURGBP – the 200 day MA remains a key support and while we stay above it and the low last week at 0.7560 there is a risk for a rebound. We need to push back through the 0.7650 level to suggest a rebound towards the 0.7720 area.

USDJPY – having broken through the 110.50 level we could well see a move towards the 113.00 area, but we need to push through 111.25 first. A move back below 110.50 retargets support at 108.70.

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