European stock markets posted their heaviest losses this year last week, with the DAX in particular falling sharply, posting its biggest fall in over a year, as rising concerns about the prospect of a Greek default, and some changes by Chinese regulators designed to take some of the froth out of the recent rally in Chinese markets, saw some profit taking. A decline in liquidity as a result of a network failure on the Bloomberg terminal probably didn’t help matters either, but even before Friday’s declines European markets were already starting to look a little jaded in any case, as investors weighed yet more downgrades to growth forecasts from the IMF and World Bank. Factoring all that in, and with the G20/IMF meeting running into the weekend and the situation in Greece top of the agenda, markets didn’t really much of an excuse to slide lower after the impressive gains seen so far this year. With EU and ECB officials no longer afraid to openly discuss the ramifications and consequences of a Greek default, and the prospect of a deal at this week’s EU finance ministers meeting, disappearing off into the distance, the odds are rising that we could well see a Greece default sometime in the next few weeks. These concerns are only likely to increase given the weekend elections in Finland which look likely to deliver a government unsympathetic to granting further money for Greece. This would make it extremely difficult to sign off on any new bailout even if Greece were to ask for one. As we head into a new week we could well get a positive boost from the weekend decision by the Chinese central bank to enact further easing measures after last week’s disappointing economic data for March. A cut in the reserve requirement ratios to 18.5%, from 19.5% is the latest measure this year to help oil the wheels of the slowing Chinese economy, and was a much larger reduction than many in the market had been expecting. The size of the reduction could well have been an attempt to offset Friday’s unexpected decision by the Chinese regulator to introduce new rules on the implementation of margin in respect of the trading of Chinese stocks, or Chinese authorities could be more worried about economic conditions than originally thought. Also on the agenda this week we’ve got the first indications of the flash April manufacturing and services PMI numbers for Germany and France which have shown some improvements in recent weeks, and did prompt some speculation that we might see some evidence of splits on the ECB governing council about an early end to the recently started QE program. While this speculation was quashed by President Draghi, further improvements could well see the euro start to squeeze higher. EURUSD – the last time the euro posted 4 days in succession was over 12 months ago, suggesting that we could be gearing up for a rebound. Last week’s break above 1.0760 and a subsequent move through 1.0800 could well see a move back to the range highs above 1.1000. GBPUSD – last week’s rebound could well a reversal in recent sterling weakness, with a bullish weekly reversal candle. While we weren’t able to sustain a move through the 1.5000 level last week pulling back from the 50 day MA, the fact we posted 5 successive positive days for the pound suggests, we could well retest the 1.5168 high seen in mid-March. EURGBP – we managed to hold above the 0.7150 level last week, and as such we could get a rebound back through the 0.7235 area, towards 0.7280, with 0.7385 the main resistance level. USDJPY – last week’s failure to push back through the 119.70 level has seen the US dollar slide back towards the March lows at 118.30. A move below 118.30 retargets the 116.50 level. We need to push back above the 120.70 level to retarget the highs at 122.00. 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.