European markets continued their rebound yesterday, rising for the third day in a row, helped on their way by further positive earnings reports, as well as continued M&A, as a turbulent July comes to a close and the prospect of the first positive month since March. Some of the gloss was taken off proceedings in the afternoon session on reports that the IMF board had insisted that, without debt relief, the organisation would not be able to take part in the latest Greece rescue package. This will make it extremely difficult to agree on any form of bailout package in the time allotted simply because Germany have insisted that the IMF has to be involved, which seems rather bizarre, that of all the countries involved it is Germany who opposes the concept of any form of debt relief the most. Given that Greece needs to make a €3.2bn payment to the ECB by 20th August it seems highly unlikely that the Bundestag would agree a new €86bn bailout without IMF participation, which raises the rather thorny prospect of further bridging finance, in exchange for further prior actions or reforms. The US dollar was a strong performer again yesterday after US GDP numbers came in better than expected for the year, with Q1 getting revised upward from -0.2% to 0.6%. With Q2 coming in at 2.3%, and personal consumption also showing strongly, investors appear to be lining up more and more behind a potential September rate rise. Other revisions of GDP painted a much weaker picture of the US economy than had previously been the case in 2014, 2013 and 2012, in the process painting a much shallower recovery than previously been thought over the years. This means that the actual size of the US economy is a little smaller than originally thought after the crash of 2009. Prices also came in a little bit firmer than anticipated, feeding into the September narrative, but concerns still remain not least the fact that overall prices still remain well below the Federal Reserve’s target rate. This is even before the fact that energy prices have slid quite sharply again in the past couple of months, with oil prices down by 20% and gasoline prices down by over 10%. Today’s employment cost index for Q2 could well reinforce the weak price narrative in the same way that the average hourly earnings data did at the beginning of this month. This is expected to weaken slightly from 0.7% in Q1 to 0.6%. The Federal Reserve often looks at this measure when deciding on policy. Furthermore despite the rebound in Q2 GDP some parts of the US economy have been stubbornly weak all year with the Chicago manufacturing PMI contracting in four months out of the last five. Today’s Chicago PMI for July is expected to come in at 50.9, up from 49.4 in June. Yesterday’s monthly economic bulletin from the European Central Bank painted a cautiously optimistic picture of the economic recovery story in Europe, helped in no small part by lower oil prices, though the bank was at pains to point out that it remained committed to continuing its asset purchase program until September 2016, due to weak inflation. With preliminary German July CPI data coming in weaker than expected yesterday due to the decline in energy prices, today’s EU July CPI figure is likely to exhibit similar soft tendencies with an expectation that inflation will remain unchanged at 0.2%. Recent economic data has painted a somewhat mixed picture of economic conditions in Europe’s economies with Spain and Ireland showing some decent growth, even if unemployment levels remain higher than is desirable. Of a bigger concern last week was the weakness in some of the French and German PMI data, which was significantly softer than expected, raising concerns about fragile nature of the recovery so far this year. On the plus side there has been evidence of unemployment levels coming down, albeit very slowly. The latest EU unemployment numbers for June are expected to show a decline to 11% from 11.1%, while Italian unemployment is expected to decline to 12.3% from 12.4%. EURUSD – yesterday’s move below 1.1000 has opened up the prospect of a return towards the lows this month at 1.0810, while 1.1030 caps as the euro remains stubbornly trapped in a fairly broad range. A move below 1.0800 could well signal a move towards 1.0600. GBPUSD – the 1.5680 level remains a key resistance on the upside after another failed attempt this week. Support remains down at 1.5520 trend line support from the 1.4565 lows, as well as the 200 day MA at 1.5410. A move above 1.5700 has the potential to retarget the 1.5820 level. EURGBP – despite this week’s rally to the 0.7120 area the euro remains under pressure, slipping back below the 0.7040 level, and looking like we could well see a move towards the 0.6930 lows. This remains the probable outcome unless we can get back above the 0.7040 level. USDJPY – another run at the 124.50 level saw the US dollar run out of steam before slipping back yesterday. This remains the key resistance level on the upside, with a through here retargeting the 125.85 highs. Support currently comes in at 123.00 for now, while below that we could see a move towards 122.50. 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.