We saw a disappointing start to the week across the board yesterday as Eurostoxx 50 fell to a three-week low after President Trump's “America First” inauguration speech on Friday, while the US dollar also came under pressure.

The narrow one dimensional focus of the new US president's comments, as well as his first executive actions in looking to renegotiate NAFTA and pull out of the Trans Pacific Partnership (TPP) has raised concerns that he is placing greater importance on protectionist measures than his pledges to implement tax cuts and infrastructure spending.

US markets for now appear to be holding up well despite finishing lower yesterday, they still closed off their lowest levels of the day. While markets like the idea of large scale cuts to taxes for business to “anywhere from 15 to 20 per cent”, the focus is currently on the actions President Trump is already taking, as opposed to the ones he is promising.

The FTSE 100 also fell to its lowest point since 3 January, as the pound continued to build on its gains of last week. The pound managed to lever itself up to a month high, above 1.2500 and its highest level this year against the US dollar, not bad for a currency that hit a low of 1.1985 just over a week ago.

While some have put this rebound down to the weakness of the US dollar over the past week or so as concerns about the direction of the new US administration prompt some US dollar weakness, that is really only half the story. The pound has also gone up against the euro so the sterling rebound we’ve seen over the past week or so looks like it is being driven by a modest return of confidence, now that markets appear to have a clearer idea of the Brexit road map.

This roadmap needs to clear another potential obstacle later this morning with the Supreme Court ruling on whether the government must hold a parliamentary vote to trigger Article 50 and thus kick-off the 2 year countdown to Britain’s exit from the EU.

While the government is expected to lose its appeal, there are some who think the law lords might insist that the devolved governments have a say in whether Article 50 is triggered, as per the Sewel Convention regarding devolved powers, which would in effect give the Scottish Parliament an effective veto given the SNP’s views on the subject of Brexit.

It would be surprising in the extreme if the Supreme Court were to interpret the law in this way as it would have the potential to trigger a constitutional crisis, if the UK government’s powers were to be restricted in this fashion. Even so if the law lords decide that the Sewel convention isn’t relevant to this case it will still fuel the SNP’s sense of grievance and could prompt further calls for a second independence referendum.

The likely outcome is the government loses its appeal and the UK government will have to put the triggering of Article 50 to a parliamentary vote, which in all likelihood will pass, given last month’s parliamentary debate and non-binding vote saw MP’s approve the government’s timetable to begin Brexit talks by the end of March.

In Europe we will be getting the latest snapshot of the French and German economies with the latest flash manufacturing and services PMI’s for January. These have shown significant signs of improvement in recent months no doubt as a result of the lower euro and this is expected to continue to be the case despite ECB President Mario Draghi’s warnings last week of a fragile recovery. Manufacturing for both is expected to be a touch softer, but not overly so at 53.4 and 55.5 respectively, while services are expected to improve to 53.2 and 54.6.

EUR/USD – pushing up against resistance at the 1.0770 area, while above trend line support at 1.0560 from the lows this year, the prospect of further gains towards 1.0850 remains a real possibility. A move below 1.0540 retargets the 1.0450 area.

GBP/USD – yesterday’s break above the 1.2430 area has seen the pound kick on through the 1.2500 area. A move through 1.2530 and the 100 day MA could well be the catalyst for further gains towards 1.2800 and the December highs.

EUR/GBP &ndash continues to edge lower pushing towards the 0.8580 support area. A move through the 0.8580 could well be that catalyst for a move lower towards 0.8480. While above the 0.8580 area the risk is for a short squeeze back towards 0.8650.

USD/JPY – continues to drift back towards last week’s lows at 112.55. A move below 112.55 could well target a move towards 111.60. Any US dollar rebounds are likely to find selling interest around the 113.80 area.

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