Throughout the first part of this week there had been a significant amount of optimism that we might see the potential for an easing of Ukraine tensions, as well as the prospect that the ECB might well look at some form of further easing at next week’s rate meeting. As we head into the US long weekend and the end of the month, the odds are rising that neither of these events is likely to unfold, hence the pullback seen in the last day or so, which has taken place despite a surprise improvement in US economic data, after US Q2 GDP was revised upwards to 4.2%. The optimism first started to get dialled back on Wednesday when German finance minister Wolfgang Schaueble suggested that ECB President Mario Draghi had been over interpreted with his remarks last week, followed by unnamed ECB sources claiming that any action next week was unlikely unless there was a significant drop in inflation numbers this week. Yesterday’s German CPI numbers pretty much confirmed that yesterday, coming in as expected while the July M3 numbers showed some improvement, which means that unless we see a shocker of an EU CPI number this morning any further action next week can be pretty much ruled out. Expectations are for August CPI to come in at 0.3%, down slightly from the previous 0.4%, while core prices are expected to remain unchanged at 0.8%. The extra nudge lower yesterday came on reports that Russian troops were operating in Ukraine, with NATO officials claiming that Russia had well over 1,000 troops in the country helping shore up the separatists position, as well as opening a new front nearer to the Black Sea. For all President Putin’s denials that Russian troops aren’t operating in Ukraine, we get new evidence every day to pretty much confirm that they are, and yesterday’s reports of Russian backed separatists moving into Ukraine further south appears to have raised the stakes further in the ongoing conflict between the Ukrainian army and separatist forces. There had been some optimism earlier this week that the meeting between President Putin and Ukraine President Poroshenko could well be a catalyst for a reduction in tensions, while in fact it turns out the opposite could well be the case, as once again President Putin’s conciliatory words are not matched by his deeds, or more to the point to the actions of his forces.. One thing is certain, the escalation in the last 24 hours would suggest that more sanctions are likely to be in the offing, as the tension goes up a notch, and investors would do well to take note of this. Alongside today’s EU CPI data we also have the latest unemployment data from Italy and the EU for July which is expected to come in at 12.3% and 11.5% respectively, unchanged from the previous month. Italian Q2 GDP is also expected to be confirmed as contracting by 0.1%. It’s also an important day for US data in light of expectations about an improving economy and a rise in rates. The latest PCE numbers for July are expected to remain unchanged at 1.6%, but if they show signs of an increase in inflation pressures expect to see further upward pressure on the US dollar. Chicago PMI for August is expected to recover from its shock drop to 52.6 in July, coming in at 56.8. Concerns about consumer spending habits are expected to remain, with personal spending set to fall back in July to 0.2% from 0.4% EURUSD – despite this week’s potentially daily bullish reversal the euro has struggled to push back through the 1.3230 level and fill Friday's gap. While below here, the risk remains for move towards the 1.3020 area, while a move through 1.3230 targets 1.3310. The 1.3020 area remains the ultimate target being a 50% retracement of the move from the 2012 lows at 1.2042 to the 1.3993 highs earlier this year. GBPUSD - for the past six days the pound has been capped at 1.6610/15. A failure to break below this week's low at 1.6539 could well see a sharp short squeeze towards the 200 day MA at 1.6685. Could this week be the first week in eight that we see a positive week? A move below 1.6520 targets a move towards 1.6460 and the lows in March. EURGBP - the euro appears to be struggling to push back towards its recent lows falling briefly below 0.7950 but snapping back sharply. We could see a move back towards the 0.8000 level in the short term, but overall the trend remains lower, while below 0.8010 trend line resistance from the August highs. USDJPY - the US dollar is starting to look a little top heavy above the 104.10 area with the risk we could fall below the 103.50 area towards the 102.80/103.00 area. The next resistance sits in the 105.50 area which remains a huge level given it was the recent high from the end of last year, as well as the 61.8% Fibonacci retracement of the decline from the 2007 highs at 124.13 to the lows 75.58 in 2011. 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. 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.