Yesterday we saw European equity markets post some of their best sequences of gains so far this year, as financials and basic resource stocks ripped higher, led by yet another strong gain in crude oil prices, as the Doha commitment to an oil production freeze at January levels, found support from Iran.

While this would appear to suggest that oil prices may well have found their base for now, thus prompting another sharp short covering rebound, this still stops well short of a commitment by Iran to follow suit in capping their production levels, as they look to finesse their return to the oil market, after an absence of many years.

This is probably why crude prices, despite some recent strong rallies have yet to get back above the highs seen at the end of January with $36 a barrel they key level for Brent prices, with today’s inventory data likely to be the next key test.

The rebound in commodity and finance stocks saw the FTSE100 perform particularly well as it managed to post four consecutive daily gains for the first time this year, its best run of gains since last November. Under pressure commodities trader Glencore led the gains in the mining sector after announcing that it had refinanced a good portion of its debt, helping draw a line under recent concerns about its short term sustainability.

Last nights Fed minutes may well have helped in part as they served to reaffirm the caution already displayed by senior policymakers in recent public comments, and showed that the concern about the deterioration in financial conditions was very much a shared one across the committee.

Another factor weighing on Fed deliberations was not so much the health of the Chinese economy but the reaction function of Chinese policymakers, particularly in relation to the currency.

Given how disappointing the latest Chinese trade data was this week, this is likely to be an ongoing concern and today’s CPI inflation numbers didn’t really change anything in that regard, though we did some evidence of a pickup in prices, due to higher food prices.  CPI came in higher at 1.8%, up from December’s 1.6%, while factory gate prices which have been in decline since January 2012, came in at -5.3%, an improvement on the previous -5.9%, as prices picked up slightly ahead of Chinese New Year.

Yesterday’s rebound was also helped by some fairly decent economic data from both the UK and the US, with UK unemployment coming in at 11 year lows, and US industrial production for January showing a surprise rebound of 0.9% and posting its first positive reading in six months.

Even though the rebound seen in the last few days has been a welcome respite to the sustained selloff seen in recent weeks, and has been broad based, the biggest outperformers have been the stocks hit the hardest.

For the gains to be sustained, we would need to see further gains in oil prices, and also see some evidence that central bankers have started to question whether pushing interest rates further into negative territory is the wisest course of action, though it appears that particular prospect is some way off for UK banks given this week’s uptick in the most recent CPI inflation data.

EURUSD – we’ve seen a bit of a consolidation in the last few days which might suggest a retest of the 200 day MA at 1.1050. Upward momentum should remain intact towards 1.1400, while above the 200 day MA. A move back below 1.1040 could well see a revisit of the 1.0970 level.

GBPUSD – we’ve so far held above the 1.4220/30 area and while we do so the bias remains to the upside. We need to push back through the 1.4410 area to stabilise. A move below 1.4210 suggests a return to the lows last month at 1.4090.

EURGBP – currently trading between the 0.7690 area and the recent highs towards the 0.7860 area. A slide below the 0.7690 area in the short term, could see a move towards the 0.7520 area. The 200 week MA is the key resistance on the upside at 0.7945.

USDJPY – last week’s break below the 116.00 area now opens up the prospect of a larger move lower to 106.00, completing a year-long consolidation period.  For this risk to diminish we would need to see a strong recovery back through the 116.00 area.

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