After the strong gains seen last week in Europe it was perhaps inevitable that a new week would see a pause for breath, as investors look around for fresh catalysts to drive the next leg higher. For now these catalysts seem a little thin on the ground, particularly given the surprisingly disappointing Chinese trade data, and the global growth downgrade from the World Bank for 2015 and 2016. While expectations of further stimulus have helped drive Asian markets higher to multi year highs, we shouldn’t be surprised to see some modest profit taking start to kick in, over the next few sessions. European markets also look set to open slightly lower today, as Greek markets reopen after their Easter break, with investors absorbing the latest chatter out of Athens that the Greek government could well be preparing to push EU creditors to the brink in its latest attempt to secure additional funding to fulfil its obligations over the next few weeks. We’ve already seen Greek officials deny reports of a possible snap election in the event the current stalemate continues, as the current standoff continues. While the uncertainty continues in Europe the UK is undergoing its own period of uncertainty as the clock ticks down to next month’s election, with both main political parties locked together in the polls. This deadlock is all the more puzzling despite a continued improvement in the economy, which is likely to be borne out by this week’s economic data, starting today with the latest inflation data for March. With the release of the latest CPI inflation numbers there is the distinct possibility that we could see prices go negative, if not today, but in next month’s numbers. Expectations are for 0% annual inflation for March, but it wouldn’t surprise at all to see -0.1% given the way food prices have continued to fall as the discount supermarkets continue to push prices lower, while the recent 5% price cuts by British Gas are likely to feed into energy bills for March. Core prices are expected to remain unchanged at 1.2%, while retail prices as measured by RPI are expected to remain at 1%. In recent months we’ve seen the strength of the US dollar act as a brake on US markets, as speculation increases that we could see a move on US rates sometime in the next two to three months, which in turn has prompted a significant downgrade of earnings expectations for the current quarter. Expectations of a move in rates haven’t been diminished by the unexpectedly weak March payrolls number of 126k, despite last week’s fairly dovish FOMC minutes. A number of Fed officials seem unperturbed by the weakness in the March numbers, despite hard evidence that the US consumer isn’t quite ready to trust this US recovery, and with prices continuing to look benign. While the US labour market has improved, and some Fed officials seem almost trigger happy to get started on a normalisation path, the fact remains that the US consumer remains reluctant to loosen the purse strings, given the last three months poor retail sales numbers. Today’s retail sales for March are expected to show a rise of 1%, helping reverse the decline seen in February of 0.6%, and January of -0.8%. December’s numbers also fell 0.9%, so while a good number for March could well be a US dollar positive, the numbers really need to show a strong rebound to convince. A rebound in durable goods orders would help as well, but these have also been week declining 5 months in a row, down 4.8% in total since October. Producer prices are expected to fall 0.9%. In any case for all this talk about the Fed looking to move on the Fed funds rate there is a sense of putting the cart before the horse, in terms of being rather one dimensional. When the crisis first hit the Fed first lowered rates and then embarked on easing, which suggests that normalising policy ought to happen in reverse. Surely then this would mean that policy makers ought to allow the Fed’s balance sheet to shrink back from its current size of $4trn, before thinking in terms of a rate increase? This policy also has the luxury of being easier to stop, slow down or even reverse, without any of the downsides of a U-turn, something to ask Messrs Dudley and Kocherlakota when they speak later on today. EURUSD – last week’s break below 1.0710 has seen the euro move back towards the March lows at 1.0460, having pushed below the 1.0600 level. Any rebound needs to get back above 1.0760 to suggest a return towards 1.0900. GBPUSD – the pound continues to look weak despite yesterday’s rebound from 1.4565 which suggest we could well be set to revisit the 2010 post-election lows at 1.4230. To stabilise the current decline we need to get back above the 1.4735 level and retest the 1.4900 area. EURGBP – having moved below the 0.7220 level we could well see another leg lower towards the 0.7150 area. We need to pull back above 0.7220 to look at a retest of the 0.7280 level. USDJPY – the US dollar continues to edge higher but needs to move conclusively above the 120.70 level to retarget the highs at 122.00. Support currently sits down at the 119.70 area. 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. 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