A big day for M&A saw markets in Europe close higher on the day at the end of a strongly positive month for European equities yesterday. The gains seen in Europe stand in marked contrast to the performance in US markets, which saw all three major indices just about manage to eke out a gain for April, after the big falls seen in February and March.

While European markets were able to close the month of April on a positive note, US markets finished the day lower, despite further deals in what has been a strong month for M&A activity. The underperformance in the US appears to have the hallmarks of an investor base starting to worry about the potential for a slowdown in the pace of earnings growth, at a time when some of the economic data outside of the US has started to show signs of turning lower.

With the US dollar also starting to strengthen in recent weeks and the prospect of multiple US rate rises this year, the boost of a lower US dollar for foreign earnings appears to be at risk of diminishing.

In Europe the fall in the euro and the pound is helping to give a lift to equity markets, though a surging oil price has also helped lift the FTSE100.

Brent crude oil prices hit another three year high above $75 yesterday in the wake of comments by Israeli PM Netanyahu that Iran ran a secret nuclear weapons program and had lied about it. With President Trump already threatening to tear up the existing nuclear deal unless a new one is drafted these revelations appear to increase the risk that sanctions could be reimposed, thus potentially pushing oil prices even higher.

With most of Europe off for the May Day holiday, any market reaction to President Trump’s decision to extend for thirty days the EU’s exemption to the aluminium and steel tariffs will have to wait until tomorrow.

Meanwhile, today’s focus will be on the UK in the wake of last week’s disappointing Q1 GDP data and the latest manufacturing PMI numbers for April.

This has been one area where the UK economy has been doing well in the past few months. For the last nine months we haven’t seen a reading below 55, reinforcing how resilient the sector has been. Estimates are for a modest slowdown from 55.1 in March to 54.8.

The latest lending data is also likely to show a slight softening in the March numbers, with consumer credit slipping to £1.4bn from £1.6bn.

Mortgage approvals and net lending is also likely to have slowed given the cold weather in March, given its not exactly optimum weather for viewing properties. With the pound already under pressure ahead of next week’s Bank of England meeting and inflation report, traders in the pound will want to see some encouragement of a pick up in the April PMI numbers this week.

In the US the latest Fed inflation numbers appear to show prices rising back closer to the Fed’s 2% inflation target, and while we’ve also seen a softening in some of the recent US data, the slowdown here hasn’t been anywhere near as marked.

Today’s ISM manufacturing for April is expected to show a slight softening from 59.3 to 58.4, while prices paid is expected to rise further to 78.3 from 78.1, another multiyear high.

EURUSD – currently struggling to push back above the 1.2150 level and the March lows, keeping open the prospect of a move towards the 1.1800 level, with support at the 200-day MA at 1.2000. This would appear to complete a topping pattern that has been playing out over the last few months. A move back above 1.2170 negates this break lower and argues for a move back to 1.2300.

GBPUSD – continues to look soft with support at the 1.3710 level, with a break potentially targeting a move towards the 200-day MA at 1.3520. We need a move back above the 1.3920 area to stabilise and target a return to the 1.4020 area. 

EURGBP – drifted back from the highs last week at 0.8830 and back below the 100-day MA. We need to see a close above the 100-day MA to target the 200-day MA at 0.8880. While below the 100-day MA we could drift back towards the 0.8750 and last week’s lows at 0.8680.

USDJPY – currently looks well supported at the 108.70 area with resistance at 109.50. While above 108.70 the prospect of a move towards the 200-day MA at 110.20 remains possible. A move below 108.70 reopens up a move back towards 108.20.

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