Our prop desk is still holding those short S&P positions from last month, but more recently we’ve seen some short interest in USDJPY, some buying of EURUSD and also some support for the DAX.

Daily Round Up

We have a relatively quiet day ahead in terms of economic data, although many investors will have the quarter end in sight with this potentially driving some position keeping. US equities and the dollar have both come in for a rough ride of late so comments from various Fed members will be under scrutiny to see if there’s room for support here, but the questions over sentiment in the US seem to be as much about the political landscape as they are the economics.

Fundamental Analyst – Eve of Article 50 sees Sterling with a stiff upper lip

Tomorrow, Theresa May will formally trigger Article 50, the process by which the United Kingdom will begin withdrawing from the European Union. This has been widely announced to the market, but with the Brexit honeymoon period for UK economic data already seemingly over, could there be some resulting downside pressure for the pound? As it stands for now, GBP remains resilient, but with a relatively quiet economic calendar in the next 24 hours and nothing of note due out of the UK, the excuse to take money off the table ahead of any potential uncertainty could well see the stiff upper lip move to a bloodied nose. The uncertainty of the Brexit process means there’s little confidence as to where the UK economy – and indeed sterling – will go next.

EUR/USD continues its march higher with the pair bouncing off highs of 1.09 shortly after the European close last night. We may be light on data, but any comments on monetary policy from ECB member Benoit Couere when he speaks at 11.45am GMT this morning could provide some fresh direction for the common currency. The market is looking for hawkish tones that would underline the idea Eurozone interest rates may start to rise ahead of the end of the current QE package – although the weekend’s win for the CDU in German elections is certainly taking some of the pressure off here. Again, with EUR/USD having been suitably inflated of late, any dovish sentiment could easily see these positions reversed.

Although economic data is generally thin in the ground today, we do have the March US consumer confidence reading slated for 3pm GMT. This has the potential to provide some fresh support for the greenback – USD/JPY’s slide stalled just above the psychologically significant 110 level, so a bumper reading here could help play down the slightly more dovish tones we’ve see emerging from the Federal Reserve of late. We also have a number of Fed members speaking through the session including Ms Yellen at 1pm GMT – the potential for a snap back of recent greenback losses shouldn’t be overlooked.

The run off for US equity indices appears to be coming to an end, with the S&P rallying hard off yesterday’s session lows. Opinions are divided as to what last week’s failure to implement healthcare reform means for the next steps in Trump’s agenda – although current market reaction seems to be betting on the fact this will make progress in changes to tax policy even more important to push through. Given the cross-party rejection we saw over healthcare, this could be too optimistic a view and ultimately equity valuations remain inflated. Medium term, the risk here remains on the downside.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.