It’s been a disappointing start to May for equity markets in Europe prompting some comparisons to last year where we saw the beginnings of the volatility that has characterised the last 12 months price action.

While the US Federal Reserve may have cooled on its plans to raise interest rates multiple times this year it is becoming increasingly clear that for all the promises to do “whatever it takes” by central banks in Asia and Europe that monetary policy is starting to stretch the parameters of what is effective.

Weak manufacturing data from China over the weekend was followed by lacklustre European data as well as weak US ISM and Markit manufacturing data. When UK manufacturing data subsequently disappointed with its weakest reading since early 2013, and the EU downgraded its economic forecasts for the euro area for the remainder of the year investor sentiment soured further.

This appeared to act as the final straw for oil prices which had already been showing some signs of exhaustion at the end of last week, after four weeks of strong gains.

With OPEC and non OPEC production levels still showing no signs of slowing down and rising evidence that demand appears to be slowing, the recent rise in oil prices could well be set to see a period of consolidation.

Despite posting a 15 month low the US dollar index managed to close higher on the day yesterday as the recent negative momentum behind the greenback’s recent decline reversed sharply, with the commodity currencies bearing the brunt, with the Australian dollar being hit particularly hard after the RBA cut rates to a new record low of 1.75%, in response to last week’s slide into deflation for Q1 CPI.

After this week’s weaker than expected manufacturing numbers, attention will turn to the latest services sector PMI numbers for April which have in recent months have tended to outperform the manufacturing numbers.

Lower oil prices have certainly acted as a significant boost to consumer spending in the first quarter of this year in the EU area and it is hoped that this can continue as we start to look at the Q2 numbers.

The Spanish economy has been notable for its outperformance in recent months despite continuing high levels of unemployment and today’s latest numbers are expected to come in at 55.1, while Germany is expected to remain unchanged at 54.6.

On the downside the French numbers have consistently underperformed, though we are expecting to see a pick up to 50.8 as the French services sector strives to shake off the after effects of the November attacks in Paris.

Due to the UK holiday on Monday the UK data is one day out of sync which means that in the wake of yesterday’s poor manufacturing number, a decent number from the construction sector for April would be particularly welcome today, with a slight slowdown to 54 from 54.2 expected.

Lastly we get the latest US Services sector data in the form of the ISM non-manufacturing for April as well as the latest ADP payrolls report along with a host of revisions to March durable goods data.

Further disappointing numbers here is likely to undermine the case further for a rise in rates at the June meeting despite yesterday’s comments from the Atlanta Fed’s Dennis Lockhart that a June rate rise remains on the table.

Market expectations are for an improvement in the ISM non-manufacturing data to 54.8 from 54.5, which does rather fly in the face of some of the recent data, while the latest ADP payrolls report is expected to see 195k new jobs added in April.

EURUSD – despite a run up to 1.1616 yesterday the euro slipped back as the recent bullish momentum subsided. The inability to sustain the move higher could well prompt a pullback towards 1.1420 initially and even potentially towards the 1.1220 area, which if broken could see a move back towards the 1.1140 area, the lows at the end of March.

GBPUSD – the run higher in the pound came to an abrupt halt yesterday posting a key reversal day in the process, after peaking at 1.4770. This could well spark losses back towards the 1.4470 level and even as low as the 1.4300 level. Only a break below 1.4300 would undermine the bullish scenario.

EURGBP – the euro looks set for a retest of the 0.7930 area and 200 week MA. While below the risk remains for a move back down towards the recent lows at 0.7730 and the 0.7690 area. A move above 0.7940 retargets the 0.8000 area.

USDJPY – the US dollar sank below 106.00 yesterday, with the next support sitting down at the 200 week MA at 105.20. A weekly close through here has the potential to open up the 100 level. To stabilise we would need to see a recovery back through the 107.80 area, which could well see a return to the 109.00 area.

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