After another volatile week for stock markets it was the turn of US markets to underperform, finishing lower, but crucially off their lows and more importantly above their 200-day MA’s. This is significant given that US markets are the only remaining global benchmarks still above this long term average.

With US earnings season starting this week some decent reports could be the difference between a rebound off these lows, and optimism about future profits or worries as to whether we’ve seen the high water mark for profits growth. Investors will have to look past recent tax changes, as well as market volatility and flatter yield curves to determine what effects these might have on long term profitability.  

European markets finished in a much more positive vein last week, despite having a disappointing day, closing higher for the second week in succession, raising some hope despite concerns about an escalation in trade tensions, that perhaps markets could be near a short term base. 

Whether that assessment proves to be accurate is likely to depend largely on whether the extra $100bn worth of measures on Chinese products threatened by President Trump at the end of last week, as a response to China’s duties on aircraft and soybeans, ever see the light of day.

The chatter over the weekend appeared to suggest some optimism that some form of deal would likely be the probable outcome, though how long that could take to pan out remains a significant unknown, and as such further volatility seems likely. This optimism over a solution to the current stand-off appears to be manifesting itself in Asia markets this morning as investors focus on a number of tweets from the US President that suggested that despite the tension an amicable solution would be arrived at.

While stock markets appear to be the pressure valve for market concerns about a trade war, currencies have continued to trade in the same range that they have been in over the past few weeks.

The US dollar has continued to underperform despite further improvements in the broader economic data, and a fairly upbeat assessment of the US economy by new Fed chair Jay Powell in comments made on Friday, and the prospect of further rises in interest rates in the coming months.

Friday’s payrolls report, while disappointing on the headline number of 103k, well below expectations of 193k, saw the US dollar slip back, though some of that may well be down to wider concerns about US trade policy. Nonetheless the fact that the number was so low was a surprise given how strong the ADP report had been a couple of days earlier. Offsetting that was wages growth which increased slightly to 2.7% while the unemployment rate remained steady at 4.1%. This might suggest that the low headline number could be a symptom of some tightness starting to creep into the labour market, as jobs become harder to fill.

EURUSD – continues to trade within the wider 1.2200/1.2500 range that has constrained the price action for much of this year. We need to see a break below 1.2160 or a break above 1.2540 to suggest a strong move in either direction.

GBPUSD – currently has some resistance at 1.4120 as well trend line resistance and the 200-week MA at 1.4270, which is keeping a short term lid on the pound. We have support at the 1.3970 area and below that at 1.3720.

EURGBP – hasn’t been able to get back to the 0.8800 level that we saw at the end of March.  We need to see a move back above the 0.8820 level to signal a move back to 0.8920. While below the risk is for a move back to the 8-month low of 0.8667 which we saw in the middle of last month.

USDJPY – found resistance at the 107.50 area last week and has drifted back lower. A move through 107.50 retargets that 108.20 area. The 105.20 area remains a key support with a break below 105.00 opening up a move towards 103.00. 

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