We’ve seen a little bit of a pullback overnight in Asia after this week’s gains and a lower US close yesterday as investors indulge in a bit of profit taking ahead of the weekend, and this is likely to see a lower open in Europe today.

All of this week we’ve seen economic data that has by and large pointed to continued economic expansion in Asia as well as in Europe, the US and the UK.

Manufacturing PMI in China rose sharply in February with export orders on the Caixin measure jumping to their highest levels since September 2014. What was also notable was that input prices continued to rise and this is likely to ripple out further across the globe in the coming months.

We’ve seen similar trends in the manufacturing data here in the UK, Europe and the US and today’s services PMI data is unlikely to be any different as we come to the end of a record breaking week for stock markets.

Overnight the latest Caixin services PMI numbers for February added a bit of cold water to the proceedings by coming in at 52.6, down from 53.1 in January, as the improvement in economic activity in China slipped a touch, as it slipped away from being near 18 month highs.

In Europe it’s expected to be a similar story with the latest Spain, Italy, France and Germany services numbers. All are expected to show significant improvements on their January numbers, with increases to 55.1, 53.1, 56.7 and 54.4 respectively.

As far as the UK is concerned the pound has come under pressure this week as a result of concerns about a slowing economy, as well as rising expectations of a US rate rise, while rising EU inflation has helped support the euro ahead of next week’s ECB rate meeting.

This week’s PMI data has shown some softening in the UK manufacturing sector, a pick up in the construction sector, while today’s services PMI number is expected to reinforce concerns that the sector that has been the primary driver of UK growth in the second half of last year is starting to take a bit of a back seat as rising prices start to act as a brake on consumption.

The latest February number is expected to soften slightly to 54.2, from 54.5 in January.

The US remains the key driver of markets right now and the sudden hawkish stance of a number of previously dovish Fed officials has caught investors somewhat off guard in the past week or so, and pushing the prospect that we’ll see another interest rate rise into a realistic prospect. In fact such has been the turnaround in expectations, that a rate move looks more or less a done deal.

Today’s US ISM services numbers for February are expected to underscore this increased optimism with an expectation that we’ll see a robust 56.5, however the acid test will be later today when a week of Fed speakers concludes with four more FOMC voting members speaking about the US economy.

We start with Charles Evans of the Chicago Fed, who generally tends to lean towards the dovish side, so any hawkishness on his part would be significant. We also Jerome Powell from the Fed board of governors, however it will be the speeches of Fed chief Janet Yellen and her deputy Stanley Fischer whose comments will be of most interest.

This week we’ve heard normally dovish members of the Federal Reserve in Lael Brainard and William Dudley of the New York Federal Reserve state that the time was coming closer to the time for another rise in interest rates.

This has sent the market probability for a Fed rate rise this month to 90%, a staggering rise from 36% just over a week ago and to a level where the Fed is more or less expected to act.

This move in expectations hasn’t happened by accident so Janet Yellen’s speech later today in Chicago about the US economic outlook would be a major surprise if she were to push back against her colleague’s comments from earlier this week. It would also be enormously counterproductive in terms of how the market perceives any future market guidance this year.

Likewise with Deputy Fed Chair Stanley Fischer when he speaks on New York at around the same time.

EURUSD – we’ve retested the lows of last week at 1.0490 with a break lower targeting the lows this year at 1.0340. We need to recover back through the 1.0680 area to retarget the highs at 1.0800.

GBPUSD – continues to look heavy while below the 1.2380 level and current weakness could see the pound slip as far as 1.2200.  A fall through here reopens the previous lows at 1.1980/1.2000. The pound needs to recover back through the 1.2380 level to stabilise.

EURGBP – the 0.8600 level is capping for now and remains an obstacle to a retest of the 0.8650 area. While below 0.8600 we can slip back to the 0.8520 level but we need to push below that to reintroduce further downside potential.

USDJPY – having failed to push below the 111.60 area and the recovery through 113.20 we look set for a retest of the previous peaks at the 115.00 area.

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