There was an expectation after Bernanke’s testimony on Capitol Hill yesterday that the latest Fed minutes wouldn’t add too much to overall market expectations around the prospects for further easing against expectations of possible tapering. After an initially dovish statement the fact that the Fed chairman refused to rule out tapering this year in response to a direct question left the market none the wiser, apart from the fact it would probably come at some point, the only question would be whether it was sooner or later. The release of the latest Fed minutes completely changed that dynamic with a single line, “a number of participants express a willingness to reduce QE in June.” This is hugely significant because this Fed meeting came before the most recent payrolls data and the huge upward revisions to the numbers that we saw at the beginning of May. If members of the committee felt this way before the huge upward revisions to the jobs numbers, then it stands to reason they probably feel even more inclined now, bringing forward the probability of an even livelier debate about the timing of a slowdown in the current levels of stimulus, when the Fed next meets on June 18th and the 19th. In any event this was enough to stop US stocks in their tracks, retreating from more record highs, and will ensure, along with a much weaker than expected Chinese manufacturing PMI that European markets open lower this morning, as markets fret about an earlier than expected pull back of their favourite palliative. We should know more after the next US employment report, but you can be certain another good report will ratchet up the expectations of the markets about a reduction in the scale of the current program, from the current $85bn a month, even if it overlooks the fact that the Fed’s balance sheet will still be growing, albeit at a slightly reduced pace. Later today, the focus shifts back to the European economy after yesterday’s European Summit where the subject of tax evasion was high on the agenda. Considering the state of the European economy you would have thought that growth and employment measures would also have been in there somewhere, and though they were, EU leaders seemed to be more preoccupied with the tax side of things, while the talk of jobs and growth was almost a side issue with lots of words, but not much action. We have the latest updated French, German and EU Services and Manufacturing PMI numbers for May and while we do expect to see some improvement the French numbers are still expected to remain remarkably weak, both below the 45 level. At best the German numbers are expected to stagnate around the 50 level on the services side, but remain in contraction on manufacturing at 48.7. Italian retail sales for March are expected to decline again by 0.1% The UK economy and the pound will be hoping for a slug of good news after yesterday’s awful retail sales numbers for April, which saw a decline of 1.3%. Following on as they did with the sharp fall in inflation seen in April they have reignited the tired old debate about further stimulus from the Bank of England can be expected in the near term. The IMF also added their two pence worth to the debate by stating that they felt that the UK had some headroom for further fiscal measures to stimulate economic growth. We have the latest iteration of UK Q1 GDP and given the recent improvements in manufacturing and industrial production numbers seen in the March numbers, there has to be a chance we could see a revision higher from 0.3%, even though it would seem most economists aren’t expecting that. In the US the latest weekly Jobless claims are expected to show a fall back to 345k after last week’s shock rise to 360k. EURUSD – yesterday’s rebound stalled just below the 200 day MA just above the 1.3000 level before slipping back towards this week’s low. The 1.2800 level should retain an element of buying interest. Below that the twin lows at 1.2750, which we last saw in March and April, and they remain the main obstacle to a move lower, towards 1.2680. Only a move above 1.3020 argues for a move towards 1.3200. GBPUSD - the pound continues to remain weak with the key support remaining at 1.5020/30 level. A break below here suggests that we could well see a move back to this year’s lows at 1.4830. We need to see a move back through 1.5280 and this week's high to stabilise and suggest a move back to the 1.5400 level. EURGBP - yesterday’s move above 0.8520 undermines the lower euro scenario and suggests the possibility of further gains towards the April highs at 0.8620. The 0.8520 level should now act as support where we have the 200 week MA. We need a close above 0.8520 on the week to suggest a shift in sentiment higher. Back below 0.8520 negates and suggests further range trading. USDJPY – we’ve seen further US dollar gains and look to be heading towards the 105.50 area after we took out this week’s highs at 103.30. The 102.80 level should now act as support for this move to unfold. A break through 105.50 which is 61.8% retracement of the 124.15/75.30 down move is the next obstacle towards a move towards 110.00. Given we have now broken the 100 level any pullbacks are likely to find support at the April highs. Only back below 99.80 retargets 98.50. 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