In a sign that financial markets remain skittish, the rally in US equity markets that followed on from European markets strong lead this week was stopped dead in its tracks last night, on reports of a multiple bomb threat in Hannover, with the result that the Germany v Holland game was cancelled. These reports saw US markets pull back sharply off their intraday highs as the fear factor reasserted itself, and look like translating into a slighter weaker European open this morning, despite the alert being a false alarm. Despite rising concerns that last week’s attacks are likely to have a significant dampening effect on economic activity in Europe, this week’s rebound has been driven by the belief that further policy action by the European Central Bank is now more likely, particularly in light of comments by its Chief economist Peter Praet, which in turn has driven the euro to its lowest levels in seven months. At its October meeting the Federal Reserve wrong footed the markets completely by publishing a surprisingly hawkish statement in the face of a much weaker US economic outlook than was the case at the September meeting. In September the FOMC pointed to the recent global economic and financial developments restraining economic activity which could put downward pressure on inflation in the near term. This line was dropped from the October statement, while there was also a subtle change to the narrative relating to the target range where it was discussed whether it would be appropriate to raise it, as opposed to maintaining it. This subtle change certainly suggests a very real debate about the merits of a move in the Fed Funds target range, and today’s minutes will certainly give us an insight into how vigorous a debate was had and whether the misgivings articulated by permanent members Lael Brainard and Daniel Tarullo in comments prior to the meeting in October meeting were still held by them. Since those minutes we’ve had the best payrolls report this year, the US dollar has also risen another 2.5% to be over 13% higher year on year, while concerns still remain about the health of the US manufacturing sector which appears to be undergoing its worst period since the 2008 recession, with input prices remaining worryingly weak. Yesterday’s US CPI numbers came in pretty much as expected rising 0.2%, including food and energy, while core prices rose 1.9%, but these numbers were boosted by rising housing and medical care costs, which explains why US inflation is diverging from UK CPI inflation, which includes neither of these components, and appears to be able to shrug off a year on year 40% decline in natural gas, gasoline and crude oil prices. Oil prices continue to play their almost daily game of snakes and ladders, as Monday’s gains soon gave way to losses ahead of today’s weekly US inventory data. Monday’s rebound may well have been a kneejerk reaction to concerns about increased geopolitical risk as the French Air Force carpet bombs IS’s stronghold in Raqqa, but given that supply continues to outweigh demand, the short term effect was always likely to be short-lived. EURUSD – the euro continues to drift lower after last week’s failure at 1.0820 with the prospect of a return to the March lows at 1.0460 very much on the cards. If we do manage to get back above 1.0830 we could see a run at the 1.0980 area. GBPUSD – despite look soggy the pound continues to find support at the 1.5150/60 area for now. We need a move back above 1.5300 to retarget a move towards 1.5360. A move back below 1.5150/60 suggests a retest of the lows last week at 1.5027, with major support at the 1.4980 area. EURGBP – continues to look soft increasing the prospect of a return to the July lows at 0.6935. Interim resistance can be found at the 0.7080 area, and behind that at 0.7160. USDJPY – continues to remain range bound with resistance near the 124.00 level. Only a move below the 121.80 area diminishes the prospect of a move back towards the June highs at 125.80. 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.