May Under Pressure as Parliament Returns




The return of the commons this week is set against the backdrop of a Prime Minister who is

under increasing pressure to resign. The news that at least 70 local Conservative party

associations want her gone is not yet something that might deliver her departure, but if

nothing else, it at least gives a good indication of the grass roots level of her popularity.


This is all weighing on the pound still, which closed below 1.30 versus the dollar on Thursday

and that technically negative close ensured that the price slipped further yesterday. The

GBPEUR has also continued to edge lower after it broke down through that 1.1550 support

level last week too. So far though the downside move has been modest and 1.1500 has held

firm. That’s largely down to the continuation of relative weakness for the EUR versus the

USD I think and certainly no indication of relative GBP strength.


Indeed, that dollar strength transpired into a move higher against all but the JPY yesterday

as the EURUSD dipped below 1.12 and the GBPUSD edged ever closer to 1.2900. In fact, the

USD index did pop briefly above that 97.71 level I have been highlighting for quite some

time now. However, and despite lifting to as high as 97.77 there was surprisingly no real

impetus to the move and the USD index simply edged backwards again into the US close

yesterday- more on the dollar in a second.


Overnight the latest Australian CPI report has dented the AUD after inflation down under

missed the mark to the downside. This has led to several calls for the RBA (Reserve Bank of

Australia) to now make its next policy move a cut in its benchmark rate. Those calls fly in the

face of just the opposite from many corners only a week or two back.


For the past couple of weeks there have been concerns raised over the potential for some

spurious moves in the JPY during the upcoming Japanese ‘Golden Week’ holidays, which this year sees the markets closed there for an almost unprecedented 10 straight days, from their close on 26 th April until the 7 th May. The lions share of those concerns in the FX space seem to be centred around the US/Japan value date window, which occurs each night on the US close at 10pm BST.


This would normally be when the Japanese market makers take over from their US

counterparts. However, with those absent during this extended period, there is the

possibility for some price ‘gaps’ to occur. It may not happen of course, but as I have been

discussing this for a while now with contacts and colleagues I think it only right to mention it

here.


The major economic events this week are likely to centre on the Bank of Canada policy

decision (due out at 3pm today) and then on the latest US Q1 GDP print at 1.30pm on

Friday. The Bank of Japan policy decision on Thursday isn’t going to matter much I don’t

think as its almost a 100% certainty that nothing will change there. There’s little in the way

of any important UK data due out this week so once again and with parliament returning, its

back to the ‘same old’ on the Brexit front I guess.


Turning back to whatever the Bank of Canada does or doesn’t deliver later today; the

expectation is that they will leave their current 1.75% benchmark rate on hold once again.

Meanwhile, the CAD certainly isn’t really gaining any traction versus the USD, in fact just the

opposite, as the USDCAD pushes above 1.3450 this morning.


This is against a backdrop of another lift in the price of WTI which rose above $66 a barrel

yesterday. So, as usual it will probably be down to whatever the BOC has to say about the

economic outlook that will hold the key to any reaction in the CAD. The latest inflation news

from down under is probably good reason to expect the BOC to remain somewhat cautious I

think.




Turning briefly back to the GBPUSD and the EURUSD. Both are approaching important

technical support levels this morning at 1.2911 and 1.1187 respectively. The move to as low

as 1.1192 on the EURUSD yesterday was just ahead of that 1.1187 Fibonacci support point I

have mentioned previously. So, if we do see a clear break of this, then I think it will tie in

with a more sustained upside break on the USD index. For whatever its worth I think we will

see that unfold albeit, even if rather slowly by the looks of it.


The move higher in crude oil prices did eventually have an impact on the equity markets

yesterday, but it certainly didn’t help the gold price, which looks like its still trying to push

lower, perhaps towards its 200 Daily Moving Average, currently around $1251.50. Naturally

the continuing positive equity market backdrop is also not doing the metal any favours

either.


In that regard I am continuing to keep a very close eye on the S+P 500 which got very close

to that important 2940 level that I have noted many times here previously. However, given

the failure of the USD index to make any significant headway yesterday after what was an

important technical breach, I am also wary of something similar unfolding on the S+P.


That’s because the month end will be upon us soon and with that in mind I think its

important to see if this 2940 level holds as we head into May because if it does then

perhaps the old adage might ring true this year? The jury is certainly out on that for now,

but from what I can tell there’s still little indication of any ‘FOMA’ in the market- Fear of

Missing Out. Pretty soon though, I think we will find out if that remains the case or not.


Important Economic Releases Due This Week

24/04- 9.00am German April IFO Business Climate Index

24/04- 3.00pm Bank of Canada Monetary Policy Decision

(1.75% Benchmark Rate expected Unchanged)

25/04- 3.30am Bank of Japan Monetary Policy Decision

(0.10% Benchmark Rate Expected Unchanged)

25/04- 1.30pm US March Durable Goods Orders

26/04- 1.30pm US Q1 Revised GDP Estimate

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