Yesterday's pullback in US markets may have seen us close at the highest levels this week but we still closed below Friday's high at 1,600 which would seem to suggest that despite yesterday's better than expected US economic data investors remain uncertain as to what to do given that yesterday's data appears to vindicate Bernanke's stance on tapering if the economic data continues to improve. One thing is certain the declines seen in the wake of last week's meeting has prompted some debate as to the wisdom of the Fed's actions, but recent comments by the Dallas Fed's Richard Fisher may give some clues as to the Fed's thinking when he expressed concern about asset bubbles, and judging by the market reaction he may have had a point. The recent reaction in financial markets has to some extent been rather extreme and investors really need to grow up and smell the coffee and acknowledge that unlimited stimulus is not a sustainable model, and the Fed talking about it does not necessarily translate into a tightening policy, irrespective of what bond yields are doing right now. Rising consumer confidence, improving housing data, better manufacturing surveys all point to a gradual recovery, which while not ripping up trees, does appear to be moving in the right direction, and that is a good thing despite what markets would have you think. Asia has endured a rather turbulent session as concerns about China's banking system continue to resonate, but despite this Europe's markets look set to open marginally higher. The only data of note out today is the final reading of US Q1 GDP which isn't likely to cause too many concerns with an unchanged 2.4% reading expected. European finance ministers are also due to resume their deliberations on banking union, and in particular bank "bail in" rules with Olli Rehn claiming a deal is in sight, which seems unlikely given the extent of the disagreements. I'll believe it when I see it, given that significant divisions remain over whoever picks up the final bill for any bail-in, and with German elections due in September it seems unlikely that Germany will agree to any solution that exposes their taxpayers to further liabilities. The Cyprus model is the model preferred by Germany across the whole EU 27 member states, a move that is running into significant resistance, from Britain, Sweden and France, with Britain and Sweden particularly opposed given both are outside the euro, and would be opposed to any outside oversight of their own independent regulatory regimes, and even if some form of compromise is reached it is likely to dissolve at the merest hint of national scrutiny. The recent rise in bond yields in the periphery has started to point to rising concerns about the ability of these countries to meet their ongoing funding costs, in the face of a deteriorating European economic outlook, though for now France has been spared any undue pressure on its yields despite a contracting economy, and a government that has attracted widespread criticism due its reluctance to reform. Today's French final Q1 GDP print is expected to confirm a contraction of 0.2%. The UK is also expected to be in focus with the announcement of the latest financial stability report from the Bank of England followed by the latest spending review by the Chancellor of the Exchequer, as the government lays out its spending plans into the next parliament. EURUSD - the euro continues to hold above the converging 50,100 and 200 day MA supports which all converge between 1.3070 and 1.3085, which maintains the view of a scope for a rebound. A clear close below all three argues for a sharp move back towards the 1.2920 level, trend line support from the May lows at 1.2800. To stabilise the euro needs to get back above the Friday highs at 1.3250, and we could well see a squeeze back to these levels. GBPUSD - continues to find support above the 50 day MA at 1.5385 which keeps the onus on for a squeeze higher towards last Friday's highs at 1.5530. The long lower shadow on yesterday's daily candle suggests the market could be a little short of sterling. There is also some support at the 100 day MA at 1.5320. We need a pullback through 1.5530 to retarget the 1.5620 area. EURGBP - despite pushing below 0.8480 the euro continues to find support around the June lows at 0.8470. The rallies are getting shallower which keeps the pressure on for a move towards the March and April lows at the 0.8410 area. The broad range trade continues to confine the price action with resistance remaining anywhere near to the 0.8600 level. USDJPY - the US dollar continues to struggle above the 98.00 level despite firming US bond yields. This disconnect might be a little puzzling were it not for the weakness in the Nikkei which could be underpinning the yen. Resistance remains at the 98.30 area while the key level on the topside remains the 99.20 area and 50 day MA. The top of the cloud resistance continues to move away now at 100.90 with the base of the cloud at 97.95 and while we struggle to move higher we remain at risk of a pullback towards 95.80, having failed to take out the 98.50 area earlier this week. CMC Markets is an execution only 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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