European markets look set to open lower this morning after yesterday’s release of the latest FOMC minutes and some disappointing Chinese manufacturing PMI data showed that any optimism about a recovery in China earlier this week may well have been misplaced. The minutes showed that Fed officials had few doubts about tapering asset purchases further at the January meeting. The minutes also showed that a further $10bn was more than likely in March, with only a couple of officials having reservations, and that forthcoming meetings could well see a change to the Fed’s forward guidance mechanism, as the unemployment rate nears its guidance threshold. More importantly two other Fed officials, in addition to the hawkish pair of Charles Plosser and Richard Fisher, indicated that the bar to a slowdown in the pace of tapering was very high, in comments made yesterday by both Dennis Lockhart of the Atlanta Fed, and John Williams of the San Francisco Fed. Judging by those comments yesterday it would appear that the Fed is happy to look past the recent spate of bad data as being largely caused by the recent poor weather. You can certainly make a solid case for a slide in housing starts and building permits based on the recent weather patterns. Earlier this week we saw a sharp rise in Chinese bank lending, which rose to its highest level since 2010 in January, raising expectations that the Chinese economy could start to show signs of a rebound now that we’ve moved beyond Chinese New Year This seems a somewhat strange expectation given the recent weakness seen in Chinese PMI data, as well as concerns about a credit bubble, and this morning’s HSBC manufacturing PMI data would appear to bear out that belief, coming in at 48.3, considerably below expectations of 49.4. Given last week’s better than expected Q4 GDP numbers from across Europe we get the latest manufacturing and services flash PMI’s from Germany and France this morning, with the hope that they can continue to improve on the final numbers seen for January. In the January numbers we saw a slow start from France which slowly improved over the course of the month, but they remained stuck stubbornly in contraction mode and February’s numbers aren’t expected to be any different with both manufacturing and services expected to come in at 49.4, both slight improvements. As far as Germany is concerned the numbers are expected to remain steady with manufacturing expected to show a slight slowdown from 56.5 to 56.3, while services is expected to improve to 53.4 from 53.1. In the US the latest CPI data for January looks set to remain unchanged at 1.6%, though you would have to think at some point the recent rises in gas and oil prices could well start to feed through into the supply chain. Natural Gas prices are up nearly 60% since December last year. Weekly jobless claims are expected to come in at 334k, down slightly from last weeks 339k, while the latest Philadelphia Fed manufacturing survey is expected to show similar weakness to this week’s Empire Manufacturing survey which fell short of expectations. It is only expected to come in at 8, down from 9.4, but given how accurate some of the recent economic forecasts have been it wouldn’t be a surprise for the number to come in even lower than that. Maybe economists should look out of the window more often! EURUSD – the euro appears to be slowly edging towards the key resistance at 1.3845, which is long term trend line resistance from the all-time highs at 1.6040 and ultimately this remains the key obstacle to a move through 1.4000. We’ve also moved above 1.3755 and in the process invalidated the bearish engulfing monthly candle posted in January. While this is a blow to the downside scenario, while we remain below 1.3845 it just about remains intact. GBPUSD – the pound appears to have run into some selling interest at these currently elevated levels. The failure at 1.6820 this week could prompt a fall back towards 1.6510/20, particularly if economic data disappoints this week. The bias remains for further gains but we could well see a correction first. EURGBP – the 0.8160/70 area, continues to underpin the euro but the bias remains for a move towards the 2010 lows and 0.8065. Pullbacks are likely to find resistance around the 0.8270 area and 0.8330. USDJPY – yesterday’s rebound back to 102.80 fell short of the 103.00 area required for a move back higher. This suggests that the risk remains for a drift lower towards the 200 day MA at 100.20. This weeks low at 101.40 keeps the pressure on the downside with the first support at the twin lows at 100.80. To stabilise we need to see a move back above the 103.00 level, and the highs this month to argue for a return to the 105.50 area. 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.