Europe doesn’t appear to be set for a positive lead from Asia overnight, despite a positive session after Japanese GDP missed expectations by quite some way, coming in at 0.3%, well below expectations of 0.7%, as the placebo effect of Abenomics begins to wane, though the miss will probably mean that more stimulus will be on the way in the coming months. Having got off to a horrible start in the first two weeks of 2014 European equity markets last week posted their second successive weekly rise as concerns about economic growth and an emerging markets slow down slipped into the background, while investor concerns about a slowdown in the US appear to be being put aside as purely weather related. Rather perversely the rebound in optimism has been most noticeable in the two weaker economies in Europe, in the form of France and Italy, where we’ve seen the CAC40 retest the high this year and Italy which has seen the FTSEMib hit its highest levels since 2011, while Italian 10 year bond yields hit their lowest levels since 2006. What is most surprising about this is the fact that it has been achieved against a backdrop of more political uncertainty after Matteo Renzi, the Mayor of Florence and new leader of the Democratic Party staged his own coup against his own colleague Enrico Letta, forcing the Italian Prime Minister to step down after only ten months in office. With Mr Renzi set to be confirmed today and asked to try and form a government, one can only assume that financial markets think that he will succeed where his predecessors Enrico Letta and Mario Monti failed in gaining enough support to push through the reforms that they failed to implement. This belief does seem naïve in the extreme given that Mr Renzi will come up against the very same problems, and dysfunctional political backdrop that bedevilled his predecessors, notwithstanding the fact that he will also be the third unelected Prime Minister in a row. While political turmoil is nothing new in Italy, the return to growth last week was, but it was meagre at best, and Mr Renzi may not have much of a honeymoon period if all we get is more of the same. That being said credit ratings agency Moody’s doesn’t appear too concerned, changing the credit outlook on Italy’s debt to “stable” from “negative” saying it expects Italy’s debt to GDP ratio to level off. Away from Italy this week, we also get early indications of February manufacturing PMI data from France and Germany as well as German ZEW and a continued improvement in these indicators is likely to continue to push the euro higher, and in the process make the recovery process in the weaker economies that much more difficult. Also in focus this week in the UK we have the latest inflation data due out tomorrow, as well as unemployment data, Bank of England minutes and retail sales later this week. After Bank of England governor Mark Carney’s comments over the weekend, which reiterated what was outlined in last weeks inflation report, expectations of a rise in UK interest rates may have diminished in the short term, but they aren’t stopping the pound rising to levels last seen in 2009, and while inflation remains at, or falls below target, the Bank will be disinclined to even consider a rise in rates. EURUSD – with little or no follow through above the 1.3700 area the key resistance remains just above at 1.3845, which is long term trend line resistance from the all-time highs at 1.6040 and ultimately this remains the key obstacle to a move through 1.4000. The main support remains down near 1.3475/80. The onus still remains towards the downside, but any move above 1.3755 would invalidate last month’s bearish engulfing candle on the monthly charts. GBPUSD – the pound continues its relentless march toward 1.7000 after trading at its highest levels since November 2009 at the end of last week. Having closed at its highest levels since October 2008 last week the onus remains for further gains, with pullbacks likely to find support at 1.6600, 1.6510/20, and then below that at 1.6420. EURGBP – last weeks close below 0.8200 and just above the 0.8160/70 area, keeps the bias for a move towards the 2010 lows and 0.8065. Pullbacks are likely to find resistance around the 0.8270 area and 0.8330. USDJPY – the US dollar continues to drift lower towards the 200 day MA at 100.20. Last week’s low at 101.60 keeps the pressure on the downside with the first support at the twin lows at 100.80. To stabilise we need to see a move back above the 103.00 level, and the highs this month to argue for a return to the 105.50 area. 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.