It’s been a slow glacial process but European equity markets have continued to eat away at their post Brexit losses with the FTSE250 and the German DAX the latest to put the events of the 23rd June behind them, though they have continued to lag behind the FTSE100, which hit another one year high yesterday, as well as US markets which have pretty much gone sideways over the past week, after hitting new record highs last week.

Yesterday’s better than expected UK Q2 GDP number of 0.6% certainly helped push the FTSE250 higher, as did some decent earnings announcements from the likes of house builder Taylor Wimpey and broadcaster ITV.

Despite this pre Brexit boom for want of a better word, markets appear to be pricing a 100% probability that we’ll see an easing of monetary policy next week of 25 basis points.

This may well be as a result of the latest CBI retail sales figures which showed a decline of -14 in July, only slightly beating the -13 seen in the equivalent April numbers, down from 1 in June. Following on from disappointing consumer and business confidence numbers this could well have sealed the deal on a move next week, particularly if the final PMI numbers don’t show an improvement when they are released between Monday and Wednesday.

That being said there still remains an argument for delaying a decision on a rate cut particularly since markets appear to have settled down and &ldquo Brexit” and the triggering of article 50 isn’t likely to happen anytime soon. Furthermore a rate cut probably won’t make a blind bit of difference given that market rates are already at record low levels.

Despite the warnings of doom and gloom in the lead-up to Brexit, in the past week we’ve seen GlaxoSmithKline announce new investment in the UK, London City Airport get new funds for expansion, over and above the offer for UK software firm ARM Holdings.

Last night’s Federal Reserve rate decision didn’t offer too much in the way of surprises, as the FOMC left policy unchanged. While the committee noted the improvement in the US labour market for June, there was still the acknowledgment that measures of inflation remained low, and that near term economic risks had declined, which in theory should have delivered a hawkish bias, particularly since Esther George renewed her dissent after a pause at the last meeting.

There were some other minor changes in the language of the statement, but importantly there were none that suggested that the odds of a September move were any more or less likely, which is probably exactly what Fed officials wanted given the rise in the value of the US dollar over the past few weeks, and is probably why the US dollar slid back and gold rose sharply in the aftermath of the decision.

The reference to soft business investment was also retained which suggests that the Fed remains concerned about the reasons behind that despite a strengthening labour market.

We’ve certainly come a long way from the beginning of the year when Fed officials were talking about the prospect of four rate rises this year on data not too dissimilar to what we’re getting right now, and the reason for the change in tone can probably be summed up in two words, policy divergence, as well as little signs of inflationary pressure, which has been reinforced in the last few days by the fact that oil prices have slid 19% since the middle of June.

All in all last night’s meeting didn’t shed any further light on what the Fed might do at its next meeting, so in that context it now shifts the focus to tomorrow’s Bank of Japan meeting, given yesterday’s reports of a significant fiscal stimulus program that could be in the works from Japanese Prime Minister Shinzo Abe. Whatever the Japanese government has in mind markets remain sceptical given previous promises that have failed to deliver. Abe’s third arrow has been a long time coming and thus far hasn’t been able to even get close to its mark. There’s no reason to suppose this time is likely to be any different.

EURUSD – still finding it difficult to rally with the bias remaining towards a move towards the March lows at 1.0825. To stabilise we need to see a move back above the 1.1250 area.

GBPUSD – trend line support from the lows this year continues to hold with the risk remaining for a move back through the 1.3300 area and up towards the range highs near 1.3500.  A move below 1.3000 would negate, and argue for a return towards 1.2800.

EURGBP – having peaked just above the 0.8600 area earlier this month the euro has struggled to overcome trend line resistance at 0.8400. With support at 0.8260 and resistance just above the 0.8400 area, the risk is for a move below 0.8250 towards the 0.8100 area.

USDJPY – having failed at the 107.50 area last week, we still remain susceptible to further losses, while below 106.60. While below here the risk remains for a slide back towards the 103.50 area.

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