While European markets rebounded yesterday US markets went in the opposite direction as the euro sank to fresh 11 year lows, while the US dollar index hit its highest levels since October 2004, ahead of today’s European Central Bank rate meeting, where it is widely expected that ECB President Mario Draghi will outline the details of the bond buying programme that was announced at the January meeting. If the US dollar continues to gain ground, then questions will inevitably start to get asked about current valuations of US stocks against a backdrop of a continued appreciation in the US dollar, and the inevitable hit to overseas profitability a stronger dollar entails. When viewed against a backdrop of some evidence of softness in recent US data then it’s not surprising US investors are a little cautious ahead of tomorrow’s payrolls report. For today the main focus in Europe where we are expected to see a mixed open after Chinese leader Li Kequiang announced that Chinese authorities expected to see growth of around 7% in 2015, a rather imprecise number highlighting the significant uncertainty as to whether they might actually meet the target, as well as affording them some wriggle room if they fail to meet it exactly. What it also means is that more stimulus measures seem more likely thsn not in the coming months. On the subject of stimulus the focus today will be on two central banks, the Bank of England, who are expected to do keep rates unchanged for the 72nd month in a row, and the ECB who are having their latest meeting in Cyprus. The main focus will be on not only the form of assets the ECB intends to buy, but also on the updating of the growth and inflation forecasts, as these could give clues as to the timeframe of any QE program. It is already likely that we’ll see an upgrade to the growth forecast for 2015, from 1%, but we could see a downgrade to the inflation forecast for 2015, of 0.7%. The inflation forecast for 2016 will be interesting though as it is currently 1.3%, and if it is revised upwards then QE could well have a much more limited shelf life than a lot of people currently expect. Indeed questions are already being raised as to whether QE is even necessary given some of the more positive economic data seen this week, including a CPI number which was better than expected. It also gives credence to the German argument at the end of last year, that the fall in the oil price would act as a much better stimulus than anything the ECB could do as part of monetary policy. As it is the bond buying program already faces significant difficulties in the context of the amount of bonds available to buy given the amount of paper that already has a negative yield. In this context the negative deposit rate is a problem, as it makes it much harder for the ECB to persuade banks to offload their bonds if they then get charged for the privilege. Other questions for Mr Draghi are more than likely to be directed towards Greece, and when the ECB would be minded to reintroduce the capital waiver it so abruptly withdrew, amidst accusations it was being political, so soon after the new Greek government took office. The timing of the move prompted accusations that the ECB was acting outside its remit and at the behest of the EU to exert pressure on the Greeks, in an overly political move. EURUSD – yesterday’s move below the January lows at 1.1095 opens up a move towards the 1.0800 level in the short term, after the failure to move beyond the resistance at the 1.1250 area earlier this week. Only a move back through 1.1270 re-targets the 1.1450 area and last week’s high. GBPUSD – yesterday’s move through the 1.5330 area opens up the potential for a move towards 1.5000, with an interim target at the 1.5120 area, as the key day reversal we identified last week starts to unwind. To stabilise this move lower we need to get back above the 1.5350 area. EURGBP – yesterday’s move down to 0.7235 negates the key day reversal somewhat but we do appear to be building up some form of base around the 0.7230/40 level. We need to see a move back through the 0.7300 level to confirm though, otherwise we could well be set for a further decline towards the 0.7000 level. USDJPY – another failure to hold above the 120.00 level is keeping long positions nervous, and as such we need to get above 120.60 to suggest a retest of the 121.85 highs from last year. If we can’t sustain a move back through 119.80 we could well head back towards 118.60. CMC Markets is an execution only service provider. 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