After initially starting out the week in fairly positive fashion in the wake of the weekend stress test results, Europe’s markets slipped back soon after the release of the yesterday’s German IFO business sentiment survey for October slid to a 22 month low which appeared to puncture all the optimism that last week’s positive manufacturing PMI had appeared to generate about the health of the German economy. To twist the knife even further the IFO’s chief economist painted a particularly dark picture for Q4 saying that there didn’t appear to be any bright spots and that he expected no growth at all in Q4. Markets initially gave the results of the stress tests a fairly cautiously positive response but anyone thinking that they could mark a turnaround in the fortunes of the European banking sector, and by definition the European economy, are likely to be in for some significant disappointment. While the stress tests were undoubtedly more onerous than previous ones the outcomes don’t really alter the realities of the real problems at play in the European economy, a fact borne out by yet another monthly decline yesterday in loans to the private sector, the 26th successive month that we’ve seen a fall. Loan growth is a key component in any expanding economy, and the fact that we’ve seen lending decline for the 26th month in a row shows that consumers and businesses don’t feel confident enough to go out and borrow and spend money. The recent surge higher in US markets appears to have started to run out of steam a little, not surprising given last week’s strong rally, with yesterday’s price action struggling to move in either direction with any conviction ahead of this week’s FOMC meeting, which starts today. While US economic data continues to improve it still remains patchy in places, and today’s release in September durable goods orders is expected to continue that theme. The headline number is expected to show a rise of 0.5% an improvement on the 18.4% decline in August, which was distorted by a large drop in commercial aircraft orders. Stripping these numbers out durable goods are expected to show a small change between months from 0.4% to 0.5%, suggesting that the US consumer continues to remain cautious. Consumer confidence is expected to show a modest improvement to 87.4 in October, after dropping sharply in September to 86, from 92.4, but overall most eyes will be on the outcome of tomorrow’s FOMC meeting which is expected to pull down the curtain on the Fed’s latest bond buying program. With no indication that the ECB will step in further this year to offset the removal of US stimulus we could well spend the next few weeks on a fairly choppy ride for stock markets. EURUSD – the euro continues to edge higher but needs to take out 1.2720 to argue for a move towards 1.2800. Support continues to come in just above the 1.2600 level. We also have support at 1.2570. GBPUSD – the 1.6150 level remains the key level on the topside with a break needed to argue for a move towards 1.6300. On the downside the pound should remain fairly well supported at last week’s low just below 1.6000. The lows earlier this month remain the major support at 1.5875. EURGBP – we continue to find support between 0.7855/65 but while we stay below the 0.7940 area then the risk remains for a move back towards the September lows at 0.7760. USDJPY – the failure so far to break through the 108.50 level could well prompt a test back lower. The break last week above 107.50/60 should now act as some support, a break of which would suggest a test back towards 106.20. Above 108.50 argues for a retest of 110. 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.