US markets continued where they left off at the end of last week yesterday posting new record highs after comments from FOMC voting member Charles Evans earlier in the day, that Fed rate hikes should wait until 2016, given the weak inflation outlook, and as concerns rise about continued weakness in the US economy. While Mr Evans did hold open the possibility of a discussion about a rate move in the June meeting the prospect of any move on rates is pretty much non-existent, given the recent spate of weak data seen in the last few weeks. European markets have also been fairly resilient despite concerns about Greece’s fiscal situation, and look set to open higher this morning as talks between the parties continue. For all the talk of so called “red lines” amongst the various parties involved in the Greece debt talks, markets still remain remarkably sanguine about the prospects of some form of deal between Greece and its creditors in the coming days, though the nerves remain fairly close to the surface, as talk of referendums, and bail-ins get bandied about and then denied at regular intervals. We saw a sharp turnaround yesterday on reports that the EU Commission were pushing forward a proposal that would include an initial €5bn worth of measures including some VAT adjustments, as well as refining the primary surplus targets lower to compensate for the weaknesses in the Greek economy. The Commission reportedly also proposed the release of the outstanding €1.8bn of the existing bailout tranche as well as the outstanding €1.9bn from the proceeds of the 2014 SMP program. These reports were subsequently denied by EU officials, but not in a way to suggest there was no truth in them whatsoever. Irrespective of whether this offer was made or not it is hard to imagine that any of the protagonists would have found it satisfactory, indeed there were reports that Eurogroup head Dijsselbloem was none too happy when told of it, while the ECB and IMF aren’t likely to be that enthused either, which would appear to suggests that any solution is likely to nothing more than an exercise in short term can-kicking, at best. On the data front we have the latest survey of German ZEW investor sentiment for May, and given the declines seen in the DAX in recent days it is likely that we will see a decline from April’s 53.3 to 48.8. At around the same time we have the final EU inflation numbers for April, and they are expected to show another improvement, stabilising at 0%, year on year, which if confirmed would be the first month this year, that prices haven’t been in negative territory. The month on month number is expected to show a rise to 0.2% from 0.1%, as the rise in oil prices seen since the beginning of January has helped put a floor under deflationary pressures. Also on the radar today we also have the latest UK inflation numbers for April, which is expected to remain at 0%, unchanged from March, though it wouldn’t be a surprise to see prices show an annualised fall to -0.1%, in light of last week’s inflation report from the Bank of England, and the fact that compared to a year ago, fuel and food prices are significantly lower. While the annualised numbers are expected to show no change in prices, the month on month CPI numbers are likely to show an increase, as fuel prices continue to rebound from their lows four months ago with a rise of 0.4% expected, up from 0.2% in March. On the RPI measure, prices are also expected to remain unchanged at 0.9%, and the month on month number is also expected to show an increase of 0.4%, also up from 0.2% in March. In fact while annualised prices are likely to continue to show some weakness in the months ahead, recent data has shown that some prices are starting to edge up again, largely as a result of some of the most recent budget measures, hence the rebound in the March and April monthly numbers. EURUSD – the failure in the last two days to push on through 1.1470 would appear to suggest that we may have seen a short term peak in the euro, and we could well see a move back towards the 1.1200 area. Only a fall below the 1.1050 level negates the current upward momentum for a move towards 1.2000. GBPUSD – after the double failure above 1.5800 we have continued to drift lower and look set for a retest of the 200 day MA near 1.5600. As long as we hold above the previous peaks at 1.5570, the upside momentum of previous days should remain intact, otherwise we could well slip back towards 1.5400. EURGBP – the failure to push above 0.7285 has seen the euro slide back, and as such we could well see a retest of the lows last week at 0.7115. There is interim support at 0.7200 which could prompt a rebound with a potential new range between 0.7200 and 0.7300. USDJPY – a slightly firmer US dollar has seen the greenback rally back through 119.70, towards the upper end of its recent range with resistance still at the 120.70 level. Support remains near the recent range lows between 118.30 and 118.65. CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
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