European and US equity markets continued to recover some of their lost equilibrium yesterday after last week’s sell off, but it remains quite slow progress, with a cocktail of geopolitical concerns keeping investors cautious and oil prices elevated. We can expect another cautiously positive start today but the main economic focus is expected to be on two different events on either side of the Atlantic, namely the Bank of England minutes and the latest FOMC policy decision. The release of the latest Bank of England minutes have been widely speculated upon, after Bank of England governor Mark Carney’s speech at Mansion House last week, when he caught markets off guard with his comments that a rate hike may come sooner than markets expected. This rather sudden change of tone has been interpreted as an early indication that today’s minutes could see a split vote on the timing of an interest rate rise, and Governor Carney’s intervention an early warning of that. This speculation was reinforced by recent comments from Deputy Governor Charles Bean at the weekend, saying he would welcome a normalisation of interest rates. These interventions have invited speculation that we could get a rate rise as soon as November, and while it would be tempting to think that, the data that matters thus far doesn’t really support that. For sure unemployment is falling and growth is ticking along nicely, but given that continued divergence between CPI inflation, which fell further to 1.5% yesterday, undermining the rate hike case, and average earnings at 0.7%, any rate rise will simply widen that gap further and could undermine the current recovery. Furthermore, any decision on rates will have the added complication of the departure of Charles Bean and Paul Fisher in the coming months, and the addition of Kristin Forbes and Nemat Shafik, which could materially alter the voting dynamics. The fact is, disagreement is nothing new on the MPC, given David Miles dissent throughout the first part of 2013, when calling for an extra £25bn of QE. Even if we get a split vote it doesn’t necessarily mean a rate hike is coming sooner than originally anticipated, and markets may come round to that realisation, particularly if the income squeeze continues into the autumn. Later in the day we get the latest US FOMC policy decision and it is unlikely that we will see many surprises from that. The Federal Reserve is plainly on auto pilot where tapering is concerned, with another $10bn reduction expected, despite continued patchy economic data. Yesterday’s US CPI numbers has invited some concern that even here, tightening might come sooner rather than later, which would be more plausible given that CPI inflation is over 2%, and unemployment is continuing to fall. From that point of view we also have the views of two new Fed members in the form of Stanley Fischer and Lael Brainard, but we may have to wait for the minutes to get any clues as to what their views are. Of more importance will be whether the Fed downgrades its growth forecasts, in line with the IMF earlier this week, as well as reducing its unemployment forecasts. The press conference may well offer some lines into the Fed’s thinking though Janet Yellen is unlikely to repeat her schoolgirl error in suggesting rate hikes might come within six months of tapering finishing. The rise in inflation could well give the Fed problems though given its dual mandate, and irrespective of how well the economy is growing if unemployment continues to drift lower, rate hikes could well come sooner, especially if inflation continues to tick up. This uptick in inflation could be an area where Mrs Yellen may face some questioning. EURUSD – continues to flit between resistance near 1.3580 and the lows just above 1.3500. A break through resistance at the 1.3580 level could well target a move back through 1.3600 towards 1.3675. If we move below 1.3480, the lows this year, we also have key trend support from the 2012 lows at 1.2045, which now comes in just above 1.3450. GBPUSD – the 1.7000 level continues to cap for now with the major resistance sitting at the 2009 highs at 1.7045. This is a huge resistance level with a move through 1.7050 potentially triggering a sharp move higher. For now we have intraday support at 1.6910, while the major support lies all the way back at the 100 day MA at 1.6700. EURGBP – the euro appears to have found support at the November 2012 lows at 0.7960 and could well be set for a small pullback, with a slightly bullish daily candle yesterday. Any pullbacks need to get back above 0.8035 to retarget resistance at 0.8085. The pressure remains on the downside while we remain below trend line resistance from the March highs sitting just below the 0.8140 level, with a longer term target at 0.7880. USDJPY – the next support lies at 101.60 and the 200 day MA, after last week’s move below 101.80, with a move back through the 200 day MA retargeting the range trade lows of last week near 101.00. The range highs remain anywhere below the 103.00 area and last week’s high at 102.75. 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. 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