European markets had one of their best months in three years last month, despite concerns about the prospect of Greece default as the new Greek government continues to confront EU leaders about the direction of its current bailout program, with both sides setting out their respective fairly entrenched positions. There is little doubt that the main reason behind last month’s strong gains is the prospect of the ECB’s €60bn of extra stimulus per month, and it is this that is acting as a stabilising buffer, which is helping anaesthetise markets against the uncertainty in Greece. New Greek finance minister Varoufakis is already setting out on a charm offensive with a tour of European capitals this week, visiting London today, in an attempt to drum up support for Greece’s position in an attempt to exert pressure on Germany to be more accommodative with respect to a change of policy direction. Germany remains, for its part firmly opposed to any form of debt reduction, as do the Finns, and it is these two stances that are becoming increasingly difficult to reconcile given that Greece’s debt is to all intents and purposes unsustainable. On the flip side US markets appear to be showing some signs of exhaustion after an epic run of gains, as concerns about the recent rise in the US dollar weigh on investor expectations about the ability of US companies to maintain their margins. While there have been some notable exceptions in the form of Apple and Boeing, investors appear to be starting to question current valuations against a backdrop of a retreating Federal Reserve and a US economy that could well be starting to run into some light headwinds, due to the recent slide in commodity prices, a fact reinforced by a weaker than expected US Q4 GDP number on Friday. The shale oil revolution has been a significant arbiter of the US recovery, lowering costs and boosting jobs in the manufacturing sector, but the recent slide in oil prices, while providing a boost on the consumer side, could well herald a significant amount of cost cutting on the manufacturing side. Recent announcements by BHP Billiton, Baker Hughes and Halliburton of job losses and reduced rig counts are likely to start to filter through in the jobs numbers in the coming weeks. Against this backdrop the Federal Reserve for now seems intent on reinforcing its message that a rate rise in the summer remains on the table, in the process leaving bond markets and currency markets giving mixed messages as to the likely next move, and this would appear to suggest some downside risk to US stocks. While Fed policymakers seem to be erring on the hawkish side, recent data would seem to suggest that any tightening still seems some way off, a fact which appears to be being reflected in the bond markets, as concerns about falling prices and continued loose monetary policy globally push bond prices higher. Weekend manufacturing PMI data from China look set to reinforce this belief after the latest official number showed a contraction in activity for the first time in 30 months, coming in at 49.8, and raising further concerns about the health of the Chinese economy. The equivalent HSBC measure also contracted weakening to 49.7. Also on the radar today we have the final January manufacturing PMI numbers from Spain, Italy, France and Germany, with only Spain and Germany expected to show positive numbers above 50, with France and Italy set to show contraction albeit at a slightly improved rate of around 49.5. In the US special attention will be on the January ISM manufacturing numbers, particularly given some of the recent weakness being seen as a result of the falls in oil prices. Expectations are for a fall from 55.5 to 54.8, though it wouldn’t be a surprise to see a larger fall. Inflationary pressures are also expected to remain subdued with the latest December PCE deflator measure expected to show a 0.3% decline, and core prices set to come in at 0%. The PCE measure is the Federal Reserve’s key inflation targeting measure, and continued weakness in this rate will make it extremely difficult for the FOMC to even consider hiking rates let alone do it. EURUSD – having managed to close above the 1.1205 level the risk remains for a rebound back through 1.1400 towards 1.1530. To make further gains we need to break above the trend line resistance from the December highs. We need to see a monthly close below 1.1205, to suggest a further decline towards 1.0500. GBPUSD – despite dipping below 1.5000 on Friday we still managed to close above it, keeping alive the risk of a rebound back towards 1.5400, via resistance at 1.5280. For a move towards 1.4810 to unfold we would need to see a close below the 1.5000 level. EURGBP – the rebound off last week’s low at 0.7400 seems to be gaining traction, and has support at 0.7460 for the moment. The key level on the top side still sits up at the 0.7590 area, as well as the high last week at 0.7536. Only a move below 0.7400 suggests a move towards 0.7255, which had originally been the peaks seen in 2003. USDJPY – continues to be side-lined in a range between 117.00 and 119.00 and while we could see a retest of the 120.00 level, we could equally retest the recent lows. The key support remains just above the 115.60 level which is also potential neckline support for a forming head and shoulders pattern. A break of 115.60 could well see a sharp fall towards 110.00. 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