Yesterday saw another strong day of gains for European markets in the absence of US markets due to the Martin Luther King annual holiday, with another record for the German DAX. The gains got some added traction in the afternoon session after the Danish Central Bank cut interest rates further to -0.2%, from -0.05% ahead of this week’s ECB meeting, further fuelling expectation of ECB action later this week, as the Danish bank looks to succeed where the Swiss failed in maintaining its peg to the euro, as the markets gear up for further euro declines. It seems likely that market pressure will increase on the EURDKK peg, especially if the euro continues to decline, and despite Danish officials insistence that they had no plans to drop the peg, the Swiss said something quite similar a week ago, and we all know what happened next. The fact is recent events have soured market sentiment towards central bank forward guidance and policymakers shouldn’t be surprised if future announcements get treated with a lot more scepticism and caution, than had been the case previously. IMF chief Christine Lagarde also suggested that it would be welcome if this week’s eagerly awaited ECB QE announcement were to include full mutualisation of risks, as expectations continued to build ahead of this week’s decision, which may have also helped on the margins. Yesterday’s rebound in the euro would seem to suggest that some traders are starting to become a little nervous about the prospect of any program falling short of expectations in a couple of days’ time, with some light profit taking starting to kick in. Concerns about a sharp slide in Chinese stocks after the strong gains seen in recent weeks has fuelled fears about a bubble in Chinese equity markets, after the recent stimulus measures announced in November. It was hoped that these measures will have helped put a floor under the recent slowdown seen in some of the recent Chinese economic data in recent months, and this morning’s economic data does seem encouraging even if it flies in the face of recent PMI data and should be treated with some scepticism. About a year ago Chinese authorities insisted that they would hit their 7.5% GDP target for 2014, but it became quickly apparent that they would struggle to hit that target, as slowing demand for commodities, of which China is one of the biggest consumers, showed that the economy was starting to stutter. With copper and crude oil prices at multi year lows it is therefore quite a surprise to see the latest Q4 GDP number come in at 7.4%, above expectations of 7.3%. Furthermore the latest industrial production and retail sales numbers for December also beat expectations coming in at with industrial production coming in at 7.9%, while retail sales came in at 11.9%, both well up from November. These numbers are particularly encouraging given the recent new stimulus steps taken by Chinese policymakers in November however they remain some way from their objective to rebalance the economy away from manufacturing. Even so domestic demand has still slipped from 13.7% at the end of 2013. The recent volatility in the German stock market is likely to have kept German investor sentiment slightly off balance, but the record highs seen in the past couple of days could well have helped boost investor sentiment and today’s latest ZEW survey for January could well reflect that. Expectations are for a rise to 40 from 34.9 in economic sentiment, but this improvement needs to be tempered with the fact that we’ve seen a range of 700 points in the last three days alone, so there is a risk that we could fall short of expectations. EURUSD – interesting reaction off last week’s low at 1.1465 could well see a rebound and delay a move towards 1.1205, which is 61.8% retracement of the entire move from the 0.8230 lows and the 2008 highs at 1.6020. Any rebound looks likely to find resistance at 1.1750 and 1.1880.. GBPUSD – the lack of any rebound suggests we could be set for a move lower but while we hold above 1.5090 the prospect of a move back towards 1.5320 remains. A move below 1.5090 targets the lows this month at 1.5035, with a break below 1.4980 targeting 1.4810. EURGBP – a bullish daily candle off the March 2008 lows at 0.7590, could well see a short squeeze back towards the 0.7755 level initially. A break below 0.7590 argues for further losses towards 0.7255, which had originally been the peaks seen in 2003. USDJPY – while we hold above the 115.60 area, the risk of a short squeeze back to 119.00 remains. A break of 115.60 could well see a sharp fall towards 110.00. We would need to see a recovery in US 10y yields above 2% to suggest a turnaround and return towards the peaks. 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.