The sell-off in Europe seen yesterday looks set to continue this morning after yet another sharp decline on US markets last night, and it was once again led by the Nasdaq as investors finally start to focus on valuations ahead of the beginning of Q1 earnings season which starts today with Alcoa’s results. The surprise is that it’s taken investors so long to catch onto the fact that a lot of high growth stocks are trading on stupidly high valuations as companies like Twitter, Facebook, Pandora and Zynga continue to get pummelled. The risk is now that with margin debt on the S&P500 at record levels, the rush for the exits could feed in on itself and prompt an even bigger sell-off particularly if we get a move through the 1,830 level and March lows. We’re some way from that at the moment but unless earnings growth starts to reflect economic fundamentals and a retreating Fed then the potential for trouble will grow. We’ve seen a similar spill over in Europe with companies like ASOS and Ocado finding themselves on the wrong end of some heavy selling in the past few weeks. Since the end of February both companies have lost in excess of 30% of their value. As for today European markets look set to open lower, though well above their recent range lows of the past few weeks ago, which suggests the selling might well be contained in the short term, given that European stocks haven’t pushed to the elevated levels of their counterparts in the US. That doesn’t mean that Europe won’t get caught up in the backwash in the event of continued weakness in US markets, while the situation in Ukraine continues to have the potential to unravel at a moment’s notice after unrest in the Eastern and pro-Russian part of the country at the weekend, saw calls for a referendum on May 11th in Donetsk, with unrest also reported in Kharkiv and Luhansk. The main focus today is likely to be on the UK economy, and the ongoing recovery in sentiment and economic activity that has been ongoing for quite some time now. The latest manufacturing and industrial production data for February is expected to show a rise of 0.3% on both measures, though we should be mindful of the extremely wet weather seen in the UK throughout that month, and this might be reflected in the numbers in a way that wasn’t reflected in the equivalent PMI data for the same period. In the US session attention is likely to be focussed on speeches by FOMC voting members Charles Plosser and Naranya Kocherlakota, who are due to speak after European markets close, ahead of the release of the latest FOMC minutes tomorrow evening. EURUSD – a weaker US dollar has seen the euro rebound, having found support near the 100 day MA and trend line support from the 1.2760 lows from July last year. Only a move below 1.3640 could well argue for a move towards the February lows at 1.3475 while below 1.3820. We could well see return to the highs last week, while a break through the 1.3850 level would suggest a retest of the recent highs at 1.3970. GBPUSD – the pound looks capable of pushing back towards the 1.6700 level and trend line resistance from the 1.6820 highs at 1.6730. Trend line support in the interim comes in around 1.6540 from the November lows at 1.5855. EURGBP – the downward pressure on the euro continues to find support just above the March lows at 0.8205, with support at 0.8245/50. We could get a pullback towards 0.8340 in the interim if we push through the 0.8300 level, but that is capping for now. The resistance at the 200 day MA at 0.8420 remains a key obstacle to further gains. USDJPY – while above the strong support at last weeks low at the 102.70/80 level, the risk remains for a rebound back through 103.50, however we need to keep in mind the bearish reversal daily candle from Friday. A move through 102.70 argues for a revisit of the 101.20 level, and March lows. The 105.50 level remains a key barrier to further gains. CMC Markets is an execution only 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.