Having taken their cues from this week’s disappointing US economic data last night’s FOMC decision to leave policy unchanged wasn’t too much of a surprise to investors, given the likely economic damage from this month’s government shutdown. What was a surprise though was the tone which was significantly less dovish than markets had expected, in the process sending markets lower as no mention was made of earlier concerns about tighter credit conditions, and higher interest rates. There was also no mention of the government shutdown with the tone evenly balanced between dovish and hawkish, in a way that in no way acknowledged that the shutdown had even occurred, and this appears to have caught the market off guard, given the recent and likely continued deterioration in the latest economic data. There could of course be another explanation as to why the Fed wasn’t as dovish as markets had expected and the apparent indifference to the effects that the government shutdown has had on the economy. It can probably be partly explained by concerns that some Fed members had prior to the September meeting about the side-effects QE was having on asset prices. This apparent indifference could be a canny ploy by the Fed to blow the froth off the current market rally and introduce an element of two-way pricing by introducing a seed of doubt into the one way bet that investors had felt the current move higher had become. In any case yesterday’s disappointing ADP employment report has given us some clues as to what next week’s payrolls data could look like, and they aren’t promising, and for that reason alone the odds of the Fed tapering this year still remain remote, irrespective of last night’s less than dovish tone. We will also get an idea of the impact on the manufacturing sector, later this afternoon, with the latest Chicago purchasing managers’ report for October, which is expected to show a drop from 55.7 to 55. This seems a rather conservative estimate so it wouldn’t be a shock to see a larger drop, while weekly jobless claims are expected to fall from 350k to 341k. If investors were looking for some evidence of a recovery in Europe they may have found it in tiny pockets as both Spanish and Belgium Q3 GDP expanded by 0.1% and 0.3% respectively. In the debit column though we saw that German unemployment hit its highest levels in two years, and consumer prices declined on a month on month basis. This weakness could well impact on the latest consumer confidence and retail sales numbers which are due out later this morning, with expectations that both could rise. Given the notable cautiousness of the German consumer this could well be optimistic, but expectations are that retail sales for October would rise 0.4% while GfK consumer confidence is expected to rise from 7.1% to 7.2%. Even though unemployment is starting to tick higher in Germany, the levels there remain well below levels elsewhere in Europe where the unemployment picture is bleak and likely to get worse. Today’s unemployment data for Italy and the wider euro area is expected to remain elevated, though Italian finance minister Saccomani sought to reassure the markets by saying that Italian GDP would be expanding at 2% by the year 2017. This seems just another case of a politician offering jam tomorrow, without reform today, and to put some perspective on his claim, the Italian economy has never expanded by 2% in the last 25 years, so it’s hardly likely to start now without significant reform. This seems increasingly unlikely with the current government. The latest unemployment numbers for September are expected to show an increase in Italian unemployment to 12.3% from 12.2%, while the broader European measure is expected to be unchanged at 12%. EURUSD – while we struggle below 1.3800 the risk remains for a move through 1.3710 towards the lows last week at 1.3650. We need to see a move above 1.3830 to target key trend line resistance at 1.3980 from the 1.6040 highs in 2008. This remains a key obstacle to a move above 1.4000. GBPUSD – this week’s move below 1.6110 continues to suggest a move towards 1.5900, where we have the reaction low to a possible double top reversal pattern, from the highs at 1.6260. A break below 1.5900 has the potential to target a move towards 1.5750. For this to unfold though we would first of all, need to push below the 1.6000 level. EURGBP – now we are above the 200 day MA the risk remains for a move through 0.8600 towards the 0.8680 area. Current momentum would appear to suggest that while below 0.8600 we could see a fall back towards 0.8510, with a break below arguing for a move towards 0.8470. USDJPY - the failure to close below the 200 day MA at 97.45 keeps the bias towards the upside but we would need to see a break above 98.20/30, to target a move back towards 99.20 and trend line resistance from the 103.75 highs in May this year. 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.