While US markets once again posted new record highs yesterday there was little in the way of follow through, as stocks then slipped back, probably as a result of a little caution ahead of Fed Chair Janet Yellen’s testimony on Capitol Hill today to lawmakers, with some concern that she could well start to row back on the potential for a shift in policy at the next Fed meeting next month. Some recent weakness in prices could prompt a slightly more dovish tone, particularly in light of last week’s less than hawkish FOMC minutes. This caution in late US trading looks set to translate into a slightly softer European open this morning. Despite hitting a high of 6,943 yesterday and coming within a whisker of its all-time high at 6,950 the FTSE100 slipped back, as once again investors struggled to push the UK benchmark towards levels last seen at the beginning of this century. The contrast with the smaller FTSE250 has been quite startling with this particular benchmark hugely outperforming its bigger brother by a considerable margin in the last five years alone. European markets on the other hand have been able to continue their upward path, with the German DAX hitting new all-time highs yesterday, while the broader EuroStoxx50 pushed up to fresh seven year peaks, as investors weighed up the risks of a failure to approve new program measures from the Greek government, against the prospect of the launch of the ECB’s QE program next week. Greek officials submitted their list of reforms yesterday which is currently being reviewed by EU officials. It includes the reduction in the primary budget surplus from 3% of GDP in 2015 to help fund a program to address some of the poverty issues, to 300,000 of the most vulnerable in Greek society. There will also be a crackdown on tax loopholes and corruption when it comes to procurement. The key question is not only whether other EU governments will approve the measures, and that is by no means certain, but whether in bending to the will of the EU Syriza causes problems for itself back in Athens, where there are already rumblings of discontent from more hard line elements. The fact remains that for all those calling foul at the so-called capitulation by Alexis Tsipras, maybe they should consider the alternative, which would be an exit from the euro, and with all the extra pain that would bring. Unfortunately for Mr Tsipras he raised expectations to such a level where he was always going to under deliver and he could well pay the price for that in the coming days. It is an inconvenient truth that he who pays the piper calls the tune and currently Greece is having to dance to a different tune to its manifesto promises out of necessity for the time being. Away from events in Brussels we also have the final German Q4 GDP numbers which are expected to be confirmed at 0.7%, driven by an improvement in domestic demand, due to the fall in oil prices, as well as improvement in capital investment. The latest EU CPI inflation numbers are expected to be confirmed at -0.6% for January, reinforcing last month’s decision by the ECB to start a QE program next week, though the core CPI number is expected to come in positive at 0.6%, still well below the ECB’s 2% inflation target. Here in the UK in the wake of the all-time low CPI figure of 0.3% January, Bank of England governor Mark Carney is expected to testify in front of the Treasury Select Committee to explain the deliberations which went into the recent quarterly inflation report, and the central bank’s expectation for inflation to the end of the year, as well as any concerns MP’s have about the situation in Europe, and any effects it might have on the UK economy. EURUSD – the euro continues to find support above range support at 1.1270, with the larger key support at the 1.1205 level. Resistance remains near the 1.1450 level, with resistance behind that at the highs this month at 1.1530. This remains the next target on a move through 1.1460. GBPUSD – despite slipping below trend line support from the February lows, we found support at 1.5330 and while we remain above 1.5280 the risk remains for a move through the 1.5500 area, towards 1.5800. Only a move back below the 1.5280 area argues for a move back towards 1.5200 and a retest of the 1.5000 lows this month. EURGBP – while below the 0.7460 level the pressure remains on the downside and the 0.7250 level. USDJPY – currently ranging between support at the 118.20 level, and resistance just above 119.30. As long as we stay below 119.80 then we could well see a resumption of the recent down move, and a return towards the 117.00 level. This month’s sharp reversal at the 120.50 level throws the potential for further upside in doubt. 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.

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