While European markets basked in the afterglow of yesterday’s Chinese rate cuts, amidst optimism that we may have seen a base earlier this week, US markets inability to hold onto their gains and sink like a soggy blancmange are likely to see a negative open for Europe this morning, though a rebound in Asia has cushioned some of the effects. The inability of US markets to hold on to yesterday’s gains does raise the question of whether we’ve seen the end of the recent weakness in equity markets. At one point US markets were higher in the green to the tune of nearly 3% before rolling over into the close to finish over 1% lower as confidence about Monday marking a near term base evaporated. This late drop in US markets has been somewhat reversed by Asia markets which have rebounded, but nonetheless it does appear that sentiment remains extraordinarily fragile, which could well mean that we are going to continue to see significant price swings in the coming days. On the face of it yesterday’s actions by the People’s Bank of China should have acted as the palliative that equity markets were looking for, and for a while it seemed to work quite well, and yet there was always the nagging doubt that it was a mere attempt at window dressing to assuage a sulky market. Yesterday’s actions now make it the fifth time that Chinese authorities have cut rates in the last nine months, in addition to the recent widening in the trading band, a couple of weeks ago. It’s hard to imagine how this attempt will be any more successful than the previous four, particularly given that there is a sense that this appears to be a token measure. If they really wanted to send a message they could certainly have done an awful lot more, which suggests that they remain concerned about the rising amount of bad loans, something that can’t have been helped by the continued slide in the Chinese stock market, as investors borrowed money to invest in stocks. Meanwhile the debate continues to rage in the US as to whether the Fed will look to raise rates at its September meeting after yesterday’s economic data, showed once again that while the services sector was continuing to hold up fairly well the manufacturing sector was once again feeling the pain from the decline in oil prices. The recovery in August US consumer confidence to a seven month high is undoubtedly positive, but it also overlooks the fact that in July we dropped to an eleven month low, which would appear to suggest that the numbers are somewhat suspect. Today’s July durable goods numbers (excluding transports) should give us a good indication of whether the US consumer is confident about big ticket items, apart from auto sales. For most of this year the numbers haven’t been particularly great, going negative in April and May, but they did pick up in June, rising 0.6%, while we are expecting to see a 0.3% gain for July. EURUSD – having seen a move to 1.1700 earlier this week the euro slipped back more than we thought finding support at 1.1390. There is a risk we could slip back towards 1.1220 but remain of the view that a move to 1.1800 remains possible, while above the 200 day MA, currently at 1.1330. GBPUSD – while above trend line support at 1.5670 from the August lows keeps the pound on course for a revisit of the June highs at 1.5930 on a break above 1.5820. Only a move below the 1.5600 area delays this prospect and argues for a move back towards 1.5530. EURGBP – yesterday’s pullback fell short of the 0.7230 at 0.7255, and while below the 200 day MA the euro remains vulnerable to a slide back lower again. A close above the 0.7360 level suggests a move to the next resistance which sits at the May highs at 0.7485. USDJPY – yesterday’s rebound back to the 120.40 area ran into a brick wall pushing the US dollar back down again and on course for the 115.00 level and double top break out target. 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.