US markets looked past a shocker of a Q1 GDP number yesterday which showed that the US economy didn’t just catch a chill in Q1, it actually seized up from the cold, coming in at 0.1%, well below the lowest of expectations. Investors instead chose to focus on more recent positive economic data, and an upbeat Fed statement, which appeared to show a confidence that the US economy would enjoy a strong bounce back in Q2. This does seem to be borne out by the much more recent economic data that hit the wires yesterday as Chicago manufacturing put in a strong show in April, coming in at 63, well above expectations of 57 and an April ADP employment report that saw 220k jobs added, while the March number was revised up to 209k from 191k. These numbers reinforce the narrative that the US economy is picking up strongly, having been held back by the unseasonably cold weather in the first three months of this year, a point that was reinforced in the latest FOMC statement as the Federal Reserve shaved another $10bn of its monthly asset purchase program. The FOMC statement said “Growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions” and it was this line, along with the more recent positive economic data, that saw the Dow Jones post a record close, with the S&P also close to record highs. If today’s ISM manufacturing number for April shows a similar rebound to the Chicago PMI then the ongoing narrative is likely to get stronger, with expectations of an improvement to 54.3. The mood appears to be less exuberant amongst the smaller cap stocks where investors are being much choosier, and where valuations are well below their recent record highs. With Europe off for the Labour Day holiday today the main focus this morning will be on the UK with the FTSE100 opening more or less unchanged after Chinese manufacturing PMI for April slightly disappointed expectations of a more positive number, coming in at 50.4, below expectations of 50.5. Later this morning the UK economy will once again under scrutiny as we get the first indications of how good a start Q2 has got off to in the wake of this week’s initial Q1 GDP number. April manufacturing PMI is expected to improve slightly on the March number, coming in at 55.4, while mortgage approvals for March are expected to continue to rise, as interest in the housing market continues to pick up. With the pound continuing to gain ground at the expense of the US dollar, a continued improvement here could well see a test of $1.7000, nearly 5 years after the last attempt in August 2009. EURUSD – the euro continues to trade in the tight 95 point range of the past two weeks, lacking any conviction in either direction, remaining well short of the recent highs at 1.3970, but capped at 1.3880 for the last three days. For now we appear to be finding support at 1.3780 where there is now also long term trend line support from the lows last year. A break below the April lows at 1.3675 could well see a move towards 1.3500. GBPUSD – the pound continues to push higher breaking above its November 2009 highs at 1.6875 to hit 1.6902 before retreating, and in the process posting its highest monthly close since Lehmans. The next target lies at 1.7045 and the August 2009 highs. As such this level continues to remain important with respect to further progress. While below here the risk of a pullback towards 1.6555 remains a possibility, on a break below 1.6670. EURGBP – the euro found support at last week’s lows at 0.8197 yesterday and has pulled back from there. It needs to overcome 0.8250 to suggest a retest of the 0.8300 area, where there is strong resistance. While below the 0.8250 level the risk remains for a move towards the lows this year at 0.8158. The resistance at the 200 day MA at 0.8385 remains a key obstacle to further gains. USDJPY – the US dollar continues to find its progress capped at the 102.80 level and we need to see a move back through here to suggest a move back to the highs at the beginning of April at 104.10. We have solid support at the 101.20 area and the March low. A move through 101.20 opens up the 200 day MA at 100.90, a break of which could well see a move towards 98.60. CMC Markets is an execution only 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.