European markets appeared to take their cues yesterday from the return of Chinese markets after their week long lunar New Year break, rebounding fairly strongly after a weak ending to last week.

This buoyancy wasn’t shared by investors on Wall Street who were a little bit more cautious ahead of the resumption this week of US, China trade talks, as well as the prospect of another looming government shutdown at the end of this week, though this particular risk may be subsiding after reports that an outline of a deal was taking shape.

This cautious optimism appears to be permeating into Asia markets, with the Nikkei rising sharply as Japanese investors return from their long weekend, however the mood remains tentative, with markets in Europe set to open slightly higher.

The US dollar had one of its better days yesterday extending its upward run to eight days in a row, hitting its highest levels this year, aided to some extent by concerns about weakening economic growth in Europe, with the UK becoming the latest economy to report a weakening economic outlook.

Yesterday’s preliminary Q4 GDP number was disappointing, coming in at 0.2%, below expectations of 0.3%, and held back by a disappointing performance in December which saw a monthly GDP contraction of 0.4%, as the UK joined Germany, France and Italy in having an awful end to 2018. Despite the disappointment of a slightly weaker number this was still the 24th successive quarter of economic expansion despite the weaker annualised number of 1.4%.

Industrial and manufacturing production was also disappointing, not altogether surprising given the weak readings seen across the Channel in the last few days, while construction also had a poor month.

There is no question that the UK economy is struggling, and the sharp declines in business investment is probably the best arbiter in terms of the effect that Brexit uncertainty is having, after all who wants to invest against the current political backdrop. That being said even without Brexit it is debatable as to how much better the UK economy would be performing given the lacklustre performance of our closest neighbours and trading partners, along with concerns about the slowdown in China.

Later today the Prime Minister is expected to address MPs later today instead of tomorrow, in an attempt to allow more time to address the issues around the Irish backstop, by pledging a meaningful vote by 27th February. This probably won’t be particularly well received by a lot of pro EU MPs however their last attempt to bind the Prime Minister’s hands failed a few weeks ago, fell short and playing the same trick again doesn’t look like it has the numbers this time either.

Further delay is unlikely to be welcomed by business, however the Prime Minister appears determined to push her deal to the wire, given the lack of a parliamentary majority for any other options. This continued brinkmanship has seen the pound slip to a three week low against the US dollar. 

EURUSD – remains under pressure for further losses towards the November lows at 1.1215. A mob below 1.1200 opens up a move towards 1.1000. We have resistance at the 1.1400 level.

GBPUSD – continued to decline matching the low last week, at 1.2845/50, with the risk that further declines below the 1.2820 level could well open up a move towards 1.2700. Any rebounds need to move back above the 1.3020 level to stabilise.

EURGBP – currently have resistance at last week’s highs at 0.8820. The risk of a return to the 0.8620 January lows remains a possibility while below this key level, along with the 200-day MA at 0.8850.

USDJPY – has managed to move above the 110.20 level, thus opening up the risk of a move towards the 111.00 area.  Support comes in at the 109.80 area.

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