Over the past few days we’ve seen a number of European corporates cite the high value of the euro as being a drag on their most recent earnings numbers, and seen markets react with disappointment to some of the recent guidance. This concern may well have been behind last week’s decision by the ECB to reduce rates, but in reality it appears unlikely to change much given recent exchange rate reaction to last week’s cut. This disappointment about potential future earnings, along with broader concerns about the timing of a Fed taper, is likely to translate into a lower open for European markets this morning given that the division amongst ECB members is likely to make further easing of policy extremely contentious, and dare I say it controversial, going forward. Unless the ECB dissenters can be in some way persuaded that further loosening of policy is necessary then the risks of further splits is likely to increase, making the implementation of future monetary policy fraught with political danger. As such tomorrow’s Eurozone Q3 GDP numbers, from France, Germany and Italy could well be as good as it gets as far as EU growth is concerned, particularly if the euro continues to stay as strong as it is, given that unemployment is likely to remain high for the foreseeable future. EU leaders did announce yesterday that the current plans in place for dealing with unemployment would result in lower youth unemployment over the next two years, pledging €45bn to help bring the rate down. As with most policy initiatives announced by EU leaders it appears long on rhetoric and short on detail with most young people who are able, voting with their feet and leaving for countries like the UK and Australia in pursuit of new opportunities. As for today, attention continues to be focussed on the UK economy after yesterday’s lower than expected inflation numbers showed that falling fuel prices were helping ease the squeeze on living standards for hard pressed UK consumers. A rise of 0.1% in monthly prices in October as the year on year rate fell from 2.7% to 2.2% does ease the pressure on the Bank of England and one of its guidance knock-outs for raising rates, but it still doesn’t ease the pressure on the finances of the UK consumer who are set to have to deal with an 8% rise in energy prices in the November numbers, in next month’s figures, and the lead up to Christmas. With three month average earnings rising at 0.7%, the consumer squeeze looks set to continue for some time to come if today’s latest data is any guide. Besides, the markets focus in recent months has been less about inflation and more about recent falls in the UK unemployment numbers. The latest unemployment numbers look set to show the ILO September unemployment rate stuck at 7.7% despite double digit falls in jobless claims numbers for the last four months. Claims numbers for October are expected to show another double digit decline of 33k following on from declines of 41.7k, 32.6k, 29.2k and 21.2k, in previous months. In that time we are expected to believe that the ILO measure has only dropped 0.1%! It would not be a surprise if the ILO rate were to drop quite sharply in the next couple of months to about 7.5%, and could start as early as today with a drop to 7.6%. If this were to happen, the inflation report this morning is likely to give the Bank of England food for thought with respect to its forward guidance, and even Mark Carney may have to acknowledge that the markets are right to think that it will be a tough ask to keep rates anchored until 2016, particularly if the Bank upgrades its forecasts for growth and unemployment in line with market and independent consensus. As things stand the sterling futures strip is already pricing in a 25 bps rate hike by December next year. To combat this could the Bank adjust its guidance thresholds, and if it were to do so how would the pound react to that, given that the recent rebound in the pound has helped pull fuel prices lower. EURUSD – the current rally appears to be running into some resistance around the 1.3450/60 level for now. This you will recall triggered Thursday’s sell off to 1.3300 and needs to hold to prevent further gains back towards 1.3620. The outlook remains bearish for a move to 1 3000 in line of the bearish engulfing week at the end of October, but that doesn’t preclude a move back through 1.3500. GBPUSD – we’re still within the broader channel of price action with resistance at 1.6250 and support at the 1.5890/00 area despite yesterday’s brief drop to 1.5855. We need to break back through the 1.6110 level to mitigate the downside bias. A sustained break below 1.5900 has the potential to target a move towards 1.5750. EURGBP – it appears the scenario of a squeeze back to the 0.8450 area was too conservative an estimate. Given the strength of the move we could go to 0.8550, trend line resistance from the August highs at 0.8770. We also have resistance at 0.8520 and support at 0.8420. USDJPY – the 100 level remains the next target while above the 99.20 level, after breaking trend line resistance from the May highs at 103.75 last week. The next key resistance remains at the September highs at 100.60. Support remains just below the 200 day MA at 97.45 at 97.20 trend line support from the 25th Feb lows. 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.