European equity markets continued to remain under pressure yesterday with the German DAX pushing down on the lows seen last month, as well as a key long term trend line support from its lows in 2011, at 9,300. As we come to the end of a turbulent week, where pretty much every sector has felt the chill winds of selling pressure, the health of the global economy continues to come under singular scrutiny, with emerging markets in particular the source of increasing concern. We continue to hear a lot of reassuring words that China’s economy is not heading for a hard landing, and while that may be true major corporates appear to be concerned enough to take steps to shore up their balance sheets as they look to protect their margins and dividends. US heavy equipment supplier Caterpillar, a major supplier to the mining and construction sectors is the latest in a long line of companies to announce the potential for large job losses in the face of concerns about falling sales and slowing growth. With central banks around the world telegraphing their concerns about their respective economies with further rate cuts as Norway and Taiwan reduced their benchmark lending rates, with the potential for more to come the total number of central banks that have eased policy this year now stands at 40, in contrast to those who have actually raised rates. In fact, aside from smaller countries like Angola, Namibia and Ghana, the only major central banks to have raised rates this year are Brazil and South Africa, mainly to help shore up their currencies and help keep a lid on inflation, which makes the current hand-wringing about the timing of a US rate rise all the more bizarre. If the Federal Reserve decides to raise interest rates in the coming months it will be doing so at a time when inflation expectations are at a six year low, and when, apart from the Swiss franc, it is the best performing currency this year. It will also be doing so at a time when a good number of manufacturing indicators in the US economy are starting to flash warning signals. This month alone, the Empire, Philadelphia, Richmond and Kansas City Fed manufacturing indexes have returned negative readings. Last night’s speech by Fed chief Janet Yellen certainly kept the Fed’s options open for a rate rise this year, saying that most participants on the FOMC expected an “initial increase in the federal funds rate later this year” but if the economy surprises them then judgements might change. Translation, we may raise rates, but then we might not. Later today we will get the final reading for US Q2 GDP, which is expected to be confirmed at 3.7%, but these numbers won’t tell us anything new about where the US economy is now. The main focus in Europe today is likely to continue to be the unfolding soap opera at Volkswagen, with reports that we could see further dismissals in the wake of the ones announced yesterday, as the hunt for scapegoats begins, and the company goes its move into damage limitation mode. The worry is that in the heat for answers, adopting a scattergun approach to dampen down a media frenzy will do nothing to understand the sequence of events involved in this elaborate deception. It also runs the risk of passing judgment on individuals before they have had a chance to defend themselves. Any inquiry needs to understand why certain individuals took the actions they did, how far up the management chain the conspiracy went, and more importantly make sure that a change in corporate culture ensures it can’t happen again. EURUSD – having held above the 50 day MA we’ve seen a rebound back through the 1.1200 level which suggests the bias remains for a move back towards 1.1400. Only a move below the lows this month at 1.1080 suggests a move back towards 1.0820. GBPUSD – the key support remains at the 1.5170 lows for this month. A break below here increases the prospect of a move back towards the 1.5000 level. We need to recover back through the 1.5330 area to stabilise and suggest a return to the 1.5400 area. EURGBP – having broken higher the next resistance sits at the 0.7420 area and August highs. A move through here suggests a move back to the May highs at 0.7485. Support now comes in at the 0.7320 area, with further support at 0.7280. USDJPY – price action continues to compress in the broad triangular consolidation with triangle line resistance at 120.80, and support at the 119.20 area. The US dollar still looks vulnerable to a return to the 116.20 area seen a few weeks ago. CMC Markets is an execution only service 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.