As we see yet another record close on US equity markets, European stocks continue to lag ever so slightly behind, though the German DAX also continues to break records as well, despite ECB board member Ewald Nowotny ruling out any prospect of further rate easing in Europe over the coming months. This lack of policy flexibility on the part of the ECB appears to be being influenced by the recent improvement in some of the economic data coming out of Europe in recent weeks, not least from today’s Spanish Q3 GDP numbers which are expected to be confirmed at 0.1%, the first positive quarter since Q3 2011. If confirmed, this so called recovery will likely be heralded by European policymakers as evidence that the fiscal medicine appears to be working, though 26% of unemployed workers in Spain might have a different take on that diagnosis. Indeed we’ve seen EU commissioner Olli Rehn announce yesterday in California that he sees a broad based economic recovery taking place in Europe. He must have extremely good eyesight if he can see a recovery from there, given that Germany is really the only European economy posting any meaningful GDP growth. We are also expecting to see the latest German unemployment numbers for October, and analysts are hoping that we see these numbers level out after a surprise rise of 25k in September saw the unemployment rate come in at 6.9%. Yesterday we heard the Turkish Deputy Prime Minister announce that the risk of Fed tapering was pretty much priced into the markets, and that the next three to four years would be an era of higher US interest rates. If that is indeed the case, which seems doubtful, it would appear that someone has forgotten to tell the broader market because US equity markets appear to be behaving as if QE is pretty much here to stay after yesterday’s US economic data pointed to an economy that appears to be dropping down a gear or two into year end. US consumer confidence dropped sharply in October from 80.2 in September to 71.2, as a result of the government shutdown. Given that retail sales were slightly disappointing on the headline number for September and that today’s ADP October jobs data could well also show similar weakness investors are surmising not unreasonably that we could see the FOMC revise down its economic forecasts for the US economy over the coming months at the end of tonight’s Fed meeting. Expectations for today’s ADP number have already been revised down this week from 160k to 150k new jobs added, down slightly from the 166k in September. As things stand the S&P500 is up over 27% this year so far, which for a US economy ambling along at around an annualised 2% growth rate, gives an indication of how much easy monetary policy has turbo charged stock markets, and why we continue to make a new time high virtually on a daily basis. As such expectations surrounding the outcome from tonight’s Fed meeting are pretty low with the only outlier remaining any significant change to the economic forecasts as a result of this month’s government shutdown. Given that the Fed had revised its forecasts for the US economy slightly higher at the September meeting, a revision lower would be a natural consequence of recent events and pretty much reinforce the expectations of a 2014 taper. A failure to do make this adjustment in light of recent events could be construed as less dovish than expected and prompt some profit taking in light of recent gains. EURUSD – after another failure above 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 – yesterday’s move below 1.6110 opens up the potential for 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 – yesterday’s close above the 200 day MA has now opened up the 0.8600 area and shifts the bias back to the topside with trend line support from the 0.8330 lows at 0.8510 the key support level. 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, 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. 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