After four days of gains, it took a sharp drop in oil prices just prior to the close yesterday to prevent the FTSE100 from finishing the day higher for the fifth day in a row, and while US markets finished higher momentum does appear to be showing signs of waning.

The drop in oil prices proved to be a rather brief affair despite a sharp rise in weekly inventories, and prices were able to close at their highest levels since early January, as continued jawboning from various oil ministers about further measures to deal with the current glut contrived to help keep a floor under prices.

Yesterday’s slightly more cautious outlook appears to be predicated on the belief that while some of the more recent economic data hasn’t been as bad as feared, it still remains some way short of a significant rebound in economic activity, which raises concerns as to whether the momentum of the last few weeks can be maintained.

Earlier this week we saw a softening in the latest February manufacturing PMI data, with weakness in Europe being matched by similar weakness in China as well as the UK.

While there is no question that the global manufacturing sector continues to find its growth prospects somewhat difficult, the recent rebounds in commodity prices has raised the hope that we could well see a similar rebound in economic activity in the coming months.

In that time, concerns about a ripple out effect to the services sector do appear to have been contained, but there is still a worry that the slowdown in the services sector could last a little bit longer than many expect.

This week’s official services Chinese PMI showed a slight slowdown from 53.5 to 52.7, some of which could well be as a result of Chinese New Year, but we have seen in recent months that the numbers here have diverged on occasion with the more independent Caixin survey. This morning’s numbers from the latest February Services Caixin survey came in at 51.2, down from January’s 52.4, which is a little concerning given the divergence once again from the official numbers, and raising once again the prospect of further stimulus measures from the Chinese authorities.

In Europe the services sector, like elsewhere around the world has been helped by the decline in oil prices, and this has been borne out by a fair amount of resilience across the board.

In Spain the services sector is expected to show a slight slowdown to 53.9 from 54.6, and Italy a similar slowdown to 52.7 from 53.6.

These are expected to contrast with continued weakness in France with services here coming in at 49.8, unchanged from previously. Germany is expected to come in at 55.1.

In the UK the pound has managed to stem the tide of losses of the last few weeks with a strong rebound in the last few days, particularly against the euro, despite some disappointing manufacturing and construction sector readings.

Today’s services PMI is expected to come in at 55.1, down slightly from 55.6, but still showing a fairly healthy gauge of the UK economy’s health.

The most recent US economic data has surprised in recent days with some readings coming in better than had been expected, while last night’s revelation from the most recent Beige Book survey that economic activity had improved, isn’t really borne out by some of the most recent ISM and PMI data.

Manufacturing still remains weak but the services sector has managed to remain slightly more resilient to an extent. There was some concern last week when we got a poor reading from the Markit flash services PMI of 49.8, down from 53.2 in January, but subsequent data since then has been much better.

If today’s ISM non-manufacturing number for February matches last week’s poor Markit number then we could well see expectations for tomorrows US payrolls report get dialled back. Expectations are for a slowdown to 49.8 from 53.5.

EURUSD – we continue to hold below the 1.0900 area and while we do so the prospect of a test towards 1.0620, trend line support from the 2000 lows at 0.8230 remains. We need to get back through the 200 day MA at 1.1050 to stabilise for a move higher.

GBPUSD – the pound has continued to edge back higher pushing up towards the 1.4090 area. We need to push through the 1.4100 area to target a move towards the 1.4220/30 area. While below the 1.4100 area the risk remains for a move back towards the 1.3800 area.

EURGBP – the sharp pullback from just below the 200 week MA at 0.7945 broke below the support at 0.7740 yesterday, and now has the potential to open up further losses towards 0.7520.

USDJPY – currently range bound between support at 110.00 and resistance at 114.90 we need to see a break one way or the other for clues as to the next move. With resistance at 114.80 we would need a technical break of 116.00 to argue a short term base is in place. While below 115.00 the risk is for a larger move lower to 106.00 in the longer term.

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