Cautious trading appears to be the order of the day after last week’s dovish surprise from the US Federal Reserve, as US markets closed at their highest levels this year. Even a new product launch from Apple couldn’t reinvigorate spirits, as even the Cupertino giant got the investor equivalent of a “meh” to its latest iPhone and product upgrades. With the long Easter break approaching and the change of tone from the Fed last week, US markets have managed to push back into positive territory for the year, though European markets continue to lag behind, though the US dollar has recovered somewhat after some hawkish comments from Fed policymakers Williams and Lockhart who suggested rates could still rise in April. Firmer commodity prices, and oil prices in particular are helping keep a floor under equity markets, as we look at the inflationary picture here in the UK today, as well as the broader economic picture in France and Germany. While inflation in China, Japan and the EU continues to remain sticky, the same can’t be said for the US and the UK where we’ve some early signs of a pickup in pricing pressures, which made last week’s rather dovish FOMC meeting all the more surprising. On the Fed’s official measure of inflation there does appear to be some evidence that pricing pressures are starting to return, particularly in health care and housing, and now we’re starting to see some evidence that commodity prices may have found a short term base, there was an expectation that the Federal Reserve would probably remain a touch on the hawkish side. The fact that wasn’t the case caught a lot of people the wrong side, and sent the US dollar tumbling. It appears that the market found itself blindsided by the fact that the FOMC chose to move itself more closely with market expectations of potentially only two rate rises this year, instead of four. Here in the UK we get the latest CPI data for February, and unlike the Federal Reserve, the Bank of England has been much more dovish in recent months in respect to its own rate message. This is despite UK economic data being much better than US data, with average earnings in particular rising on a par with those in the US. Furthermore, CPI Inflation has also been rising steadily since November’s -0.1%, with another rise expected to 0.4%, from January’s 0.3%. The rebound in oil prices as well as recent sterling weakness has knocked the scenario of rate rises sometime in 2017. Last month the German IFO business sentiment survey fell to a four year low in February as concerns about the health of the banking system in Germany dampened sentiment, with the expectations index especially weak. Since then we’ve heard plenty about the latest measures the ECB has taken to help the economy in Europe, and while the banking sector has rebounded, so has the euro, which could in itself dampen sentiment. Even allowing for that we are still expecting to see a rebound in not only the March IFO but also the latest ZEW expectations index, given the slightly more benign environment. Both economic indicators are expected to show signs of improvement with the IFO expected to improve to 106.1, from 105.7, while the ZEW survey is also expected to rise from 1 to 6.3. This slight improvement is also expected to find itself manifested in the latest manufacturing and services PMI’s for March from not only Germany, but France as well. Expectations are for manufacturing to improve slightly to 50.9, while staying at 50.2 for France. Services PMI’s are expected to improve slightly in France to 49.5 from 49.2, while the German services sector slips back to 55.1 from 55.3. EURUSD – having broken above the 1.1200 level the euro rallied to 1.1343, just shy of the February highs at 1.1380. We could see a slide back below the 1.1200 area which had been initial resistance back towards the 200 day MA at 1.1050. A move through the February highs could well see the 1.1500 level. Only below 1.1030 argues for a move towards 1.0800, with a break targeting 1.0600. GBPUSD – despite making a low of 1.4055 last week the pound enjoyed a sharp reversal rallying to 1.4515. The current uptrend could still continue towards 1.4700 as long as we stay above the 1.4250 area. EURGBP – finding it toppish above the 0.7900 area and the 200week MA, which suggests that it remains vulnerable to s test back towards the 0.7680 area in the short term. We also have support down near 0.7740. USDJPY – a marginal new low at 110.65 keeps the downside pressure intact with a view to a move towards the 106.00 area. This bias remains intact while resistance at 114.80 remains intact. Above 115.00 argues a short term base is in place. 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.