We may have seen a modest rebound yesterday for European stocks but we still remain well down on the week after the big declines seen on Tuesday, though we could well get a welcome respite over the next few sessions given that Chinese markets are now closed until next week as China commemorates the 70th anniversary of the end of World War 2. European markets are therefore likely to take their lead from yesterday’s positive session on Wall Street which saw US stocks break a three day decline and open higher this morning, as investors absorb the contents of last nights Fed Beige Book survey as well as focussing on today’s release of final services PMI data for August and the latest ECB rate meeting. The Beige Book survey had something for both hawks and doves with pockets of weakness, particularly in the manufacturing sector where energy is a large contributor in places like New York and Kansas. While the survey showed that most of the country is experiencing solid growth, the lack of inflation in wages and prices suggests demand remains fragile. Yesterday’s larger than expected drop in Q2 unit labour costs merely served to reinforce concerns about the lack of income growth, despite the fiscal boost of lower oil prices. In essence there was nothing in the survey which could give clues either way as to what the Fed might do in two weeks’ time with respect to interest rates. In Europe today we get the final August services PMI numbers for Spain, Italy, France and Germany and the hope is that they don’t disappoint the way this week’s manufacturing numbers did by coming up short of expectations. Services does tend to perform better than manufacturing and in all cases we’re expecting expansionary numbers with Spain continuing to outperform with a reading of 59.3. Italy is expected to improve to 52.5, while France and Germany are expected to come in unchanged at 51.8 and 53.6 respectively. Later in the day with Greece temporarily on the back burner the ECB meets to discuss interest rate policy with speculation rising that the bank might feel compelled to look at extending its current QE program after recent dovish comments from ECB officials in the last week or so, over concerns about continued weakness in commodity prices. Further measures are unlikely given we are only six months into the current program and have another twelve months to go, and there isn’t much central bank policy can do about falling commodity prices, which suggests that ECB President Mario Draghi will try and talk the euro lower simply because he can’t do much else. With that in mind expect to see downgrades to the banks inflation forecasts, and a promise to do more if needed. The recent rebound in the euro has more to do with US dollar and sterling weakness than inherent euro strength as interest rate rise expectations have diminished somewhat in both the US and UK in recent weeks while overall M3 money growth in the euro area has been expanding quite nicely. In the UK expectations around Q3 GDP growth have endured a bit of a setback in recent weeks due to a slowdown in the manufacturing sector. After a solid Q2 the recent PMI’s have slipped back a little and while construction PMI yesterday showed a fairly solid improvement the weakness in manufacturing continues to point to a fairly unbalanced UK economy. Today’s August services PMI is expected to reinforce that but nonetheless an improvement will still be welcome with expectations of 57.6, up from 57.4 in July. EURUSD – having found some measure of support at 1.1150 the euro could well retest the 1.1400 level if it regains a foothold above the 200 day MA. We also have support down near 1.1100 where the 50 and 100 day MA intersect. The bias remains for a return towards the 1.1400 area while above 1.1080 level. GBPUSD – having dropped below 1.5330 we remain on course towards the June lows at 1.5170. A move back through 1.5340 would delay this and argue for move back towards 1.5400. We need a move back through the 1.5480 level to stabilise and suggest a return to 1.5600. EURGBP – having failed to push beyond the 0.7400 area we’ve slipped back but as long as we remains above the 0.7320 level the prospect of further gains remains. The main resistance remains towards the May highs at 0.7485. Only a move below the 0.7320 level would undermine this scenario and suggest a return to the 0.7230 level, and even back to the 0.7130 area. USDJPY – having peaked at 121.75 this week the US dollar slid back below the 120.00 level before rebounding from the 119.00 area. A break below 119.00 opens up the prospect of a move towards last week’s low at 116.20. 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.