European markets look set to return rather mixed this morning ahead of some key economic data after yesterday’s May Day bank holiday. In some European cities the day was marked by protests against unemployment and austerity and this morning’s economic data looks set to play into that theme as markets look to final manufacturing PMI data for Italy, Spain, France and Germany for April. While improvements are expected for Italy, Spain and Germany, with readings well above 50, the most recent France number slipped back last week to come in at 50.9, and once again raise fresh questions about the resilience of the French economy as we head into Q2. These improvements in economic activity, while welcome do not appear to be doing anything to resolve concerns about, or bring down the eye wateringly high levels of unemployment, which is expected to remain at 11.9%. The UK economy on the other hand continues to pull away from Europe after a strong April manufacturing PMI number yesterday, and today’s construction number is expected to be similarly positive with expectations of a slight decline from 62.5 to 62.2, raising expectations of another strong quarter of growth, to follow on from the five successive quarters we’re had so far. In the absence of most of Europe’s markets yesterday, US markets barely budged despite March economic data yesterday that suggested that the US economy may well have contracted in Q1. It would seem that the markets believe the Federal Reserve’s post meeting statement optimism that the prolonged freeze in Q1 will prompt a strong spring back in economic activity in Q2. Some of the recent data for April seen this week certainly suggest that could well be the case, but investors aren’t prepared to fully buy into that narrative quite yet, ahead of today’s latest US employment report, otherwise we would probably have seen a retest of the previous all-time highs in the S&P500. It is true that we saw a strong ADP report for April this week, but these numbers weren’t exactly weak throughout Q1, averaging 174k, while the Chicago PMI’s averaged 58.4, all fairly strong numbers, despite the Q1 deep freeze, yet yesterday’s construction numbers would appear to suggest that the next revision in Q1 GDP could well be lower, into contraction territory. It would also appear that there is some concern about the recent rises in weekly jobless claims numbers which is adding to the more cautious outlook. If we are to get the strong bounce back in growth that markets expect in Q2 then we really need to see much stronger jobs growth from today’s payrolls report of the type markets were hoping for in March when some rather optimistic estimates came in as high as 275k. Investors having had their fingers burnt with rather lofty expectations last month are being somewhat more circumspect this month with an improvement still being expected from the March number of 192k to 218k new jobs in April, but it is hard to see too much in the way of fireworks today unless we get a weak sub 150k number, or a strong 250k+ number. The fact is a number of 218k seems rather lacklustre for an economy that has been held back from a long winter freeze up, and is apparently ready to rebound like a coiled spring as the weather warms up. The unemployment rate is expected to fall back to 6.6% from 6.7%. It is against this back drop that the risk remains that investors may not be fully discounting the difference between a Federal Reserve on auto pilot on tapering, while thus far the economic data isn’t really suggesting the type of economic rebound necessary to offset the steady withdrawal of stimulus from the punch bowl. EURUSD – the euro continues to trade in a tight range and continuing to lack any conviction in either direction, remaining well short of the March highs at 1.3970, and the April high at 1.3905. The main support remains at long term trend line support from the lows last year at 1.3795. A break below the April lows at 1.3675 could well see a move towards 1.3500. GBPUSD – another new high at 1.6915 yesterday brings the pound ever closer to the August 2009 highs at 1.7045, with any pullbacks now likely to find support at 1.6780. While above 1.6780 the risk odds favour further gains and 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 continues to find support at around the 0.8200 area and last week’s lows at 0.8197 but the lack of rebound suggests we could well go lower. 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 0.8380 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. 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