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Euro pushes above 1.1000 as yields diverge, US earnings in focus

euro notes

The euro had a strong day yesterday as a number of ECB governing council members made the case for further multiple rate hikes in the coming months, although a slide in US yields also helped.

While it was no surprise that German member Isabel Schnabel pushed the case for further tightening, saying it’s too early to declare victory on inflation, we also had Ireland’s Gabriel Makhlouf saying it was too early for a pause in rates.

France’s Francois Villeroy also said the ECB would need to deliver a “few more hikes” helping to push the euro back above 1.1000 against the US dollar.   

Yesterday saw a fairly lacklustre session for markets in Europe as well as the US, in what is set to be a big week for company results on both sides of the Atlantic.

European markets finished slightly lower, despite another record high for the CAC 40, while markets in the US closed mixed as we come to the end of what could well be another positive month for equity markets in general.

The Nasdaq 100 finished the day lower ahead of the release of today’s latest quarterly numbers from Google owner Alphabet, and Microsoft as both companies look to hang onto their 20% and 17% gains so far this year.

With Facebook owner Meta Platforms due tomorrow and Amazon on Thursday, any disappointment here could well prompt investors to reassess earnings expectations over the course of the rest of the year.

That being said it's more likely that this week’s earnings numbers could merely shift the markets focus to next week’s Fed meeting when we are likely to see another 25bps rate hike.

Before these earnings announcements, we get a couple of data releases from the UK with the latest public sector borrowing numbers for March which are expected to see an increase to £21.3bn, up from £16.7bn in February. The rise in borrowing has been primarily driven by the government's energy support scheme which came to an end last month, even as tax revenues have risen.

We also get the latest CBI manufacturing orders numbers for April, which will give us a snapshot of the manufacturing sector in the UK, and which are expected to remain at -20, although selling prices are set to slow from 25 to 20.

Nonetheless borrowing for 2023 is still expected to undershoot the OBR’s £152.4bn forecast, a number that was recently revised down from the £177bn estimate from November.

In the US the latest April consumer confidence numbers are expected to show a modest slowdown to 104.00, after a surprise rise in March to 104.2 from 103.4 in February.

EUR/USD – pushed back above the 1.1000 area yesterday and looks set to push up through the previous peaks at 1.1075 to open up resistance at the 1.1120 area. Support comes in at the 1 0940 area.

GBP/USD – looks set to retest the previous peaks at 1.2540, on a break above the 1.2500 area.  Support remains at 1.2340 needs to hold to keep the bias for a move towards 1.2630, or risk a move towards 1.2270.  

EUR/GBP – still finding resistance at the 0.8860/70 area, which has capped gains so far. A break above the 0.8870 area suggests a retest the March peaks of 0.8925. Still have trend line support at 0.8770 from the August lows at 0.8350.

USD/JPY – rebounded from the 133.50 area with resistance at the highs last week at the 135.20 area. Above 135.20 retargets the 200-day SMA at 137.00. Below 133.40 argues for a return to the 132.00 area.

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