Yesterday’s declines in European equity markets and the euro appear to be sending contrasting signals. On the one hand the decline in the euro to 9 year lows would appear to suggest that with bond yields at record lows in the euro area that the policy divergence between the ECB and the Federal Reserve looks likely to accelerate in 2015. The US dollars strength has not only manifested itself against most of the major currencies but also against crude oil as the black gold also hits multi year lows against a backdrop of a supply glut and continued weak demand. This continued weakness in oil prices appears to be starting to act as a drag on equity markets as investors start to look at some of the other reasons behind the move lower and focus less on the fiscal boost a lower price delivers to the final link in the chain, which is the consumer. Weak economic data in Europe as well as slowing Chinese demand, despite this morning’s slightly better than expected HSBC December Services PMI number, are reinforcing a slowing global economic narrative in the process causing investors to weigh up the risks of investing in Europe at a time when the ECB still appears tentative with respect to additional policy steps. This might help explain why the prospect of further loosening of monetary policy by the ECB appears to be underwhelming equity investors in Europe, most likely on the basis that for all ECB President Mario Draghi’s hints to the contrary, any measures the ECB takes are likely to be too little and far too late to make a significant difference. Furthermore the likelihood of political uncertainty keeping investors cautious in the coming weeks ahead of the Greek election is likely to see investors dip in and out of equity markets until we get a clear direction of travel one way or the other. Today’s economic data is likely to reinforce the weakness at play in the euro area with the latest services PMI data for December for Spain, Italy, Germany and France. While Spain and Germany are likely to continue to remain resilient with readings significantly above 50, the current poor relations in Europe of France and Italy continue to underwhelm. In the UK the pound is also suffering on the back of a slowdown in economic data in Q4 as both manufacturing and construction PMI data for December both came in below expectations, suggesting that the recent rebound in the UK economy is starting to level off and slip back a little. While this slowdown in no way suggests that the economy is about to fall back sharply it does mean that the likelihood of a rise in interest rates looks further away than ever, and as such the pound has slid back, and it still remains under pressure from a resurgent US dollar. Today’s services PMI data for December could well help underpin some of the recent weakness, especially if the number comes in above expectations of 58.5, a slight decrease from November’s 58.6. EURUSD – despite hitting its lowest levels since 2005 at 1.1860 the inability to sustain a strong push below the 2010 lows at 1.1875 has seen the euro start to run out of steam. Despite this the close below the 200 month MA which had kept a floor under every euro decline since 2005 is a very negative development and could well open up further losses towards 1.1500. We need to close back above the 200 month MA at 1.2240 to stabilise in the short term, and given current momentum that looks a big ask. GBPUSD – the pound continues to look weak and despite a push down to 1.5180 we haven’t seen a conclusive break of the 1.5240 trend line from the January 2009 lows at 1.3500. This looks likely to be a key level in the context of a move towards the 2014 lows at 1.4810. We need to push back above 1.5500 to stabilise. EURGBP - having briefly made a six year low last week at 0.7744 the euro pulled back quite sharply with a key reversal day on Friday suggesting the potential for a short squeeze back towards 0.7930. For this to unfold we need to push back through the 0.7870 area. USDJPY - after being rebuffed at 122 in December the US dollar appears set for a retest but needs to push through 120.80 first. A retest of the 115.60 level remains a possibility while below these key levels given the bearish engulfing week a few weeks ago. A move back below 117.80 argues for move back towards the lows last month at 115.60. 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.