So goes January, so goes the year, goes the saying. Certainly a sell-off is well overdue and the Fed seems disinclined to back away from a taper. In fact given the effect on US bond yields they could be inclined to taper faster if the uncertainty in emerging markets continues to drive US yields lower. This in itself could act as a mini-stimulus as US mortgage rates fall in line with yields, giving the Fed room to taper more quickly if economic data permits. Yesterday’s US GDP data certainly appears to reinforce the view that the US economy continues to recover as the economy expanded 3.2% for Q4 with personal consumption driving lot of that growth. This Fed view may change when and if the problems in emerging markets start to impact on US exports, but for now the turmoil is giving them an opportunity to taper without seeing any tightening. European markets look set to end the first month of 2014 on the back foot as worries about emerging market economies, the fed tapering program and a slowdown in China continue to act as a weight on risk appetite. While recent concerns about emerging markets dominate the financial pages it would be tempting to think that Europe’s multitude of problems have gone away, unfortunately nothing could be further from the truth. Certainly yesterday’s fall in German unemployment is unlikely to prompt any change in policy stance from the German government while Spain’s latest Q4 GDP numbers are likely to reinforce the message that austerity is working, given they came in at 0.3%. We also saw German consumer confidence continue to rise to new multi-year highs earlier this week, and it is hoped that this will translate into better retail sales numbers which are expected to show a rise of 0.2% in December, down from the 0.8% gain in November. Today’s main focus is likely to be on the side effects of current EU policy and the unemployment levels in Europe which remain eye-wateringly high in the southern parts of the economy, and it is here that the good news of recent days is likely to end, with Italian unemployment set to remain at a record high of 12.7% in December, and EU unemployment to remain at 12.1%, just below its record highs of 12.2%. ECB President Mario Draghi continues to push back against further measures to add stimulus to the European economy, despite a continued deterioration in money supply data published earlier this week, and it is hard to see a change in position while German economic data continues to diverge away from the rest of Europe. Today’s EU CPI numbers might change that if they show significant weakness, but they are expected to remain at 0.9% for January. After yesterday’s US Q4 GDP numbers came in at 3.2%, attention shifts to today’s personal income and personal spending data for December. Given the recent gradual slowdown in retail sales markets will be looking for improvements in personal income over personal spending in the hope that we continue to see a pickup in consumer spending in the coming months. Expectations are for gains of 0.2% on both measures, while the latest PCE inflation indicator will also be watched for any additional weakness in prices in order to gauge whether deflation is starting to become a concern. This is also expected to come in at 0.2% for December and 1.2% year on year. Chicago PMI for January is expected to come in at 59, slightly down from December’s 60.8. EURUSD - another day passes, the fourth in a row, and another lower high and lower low and another failure to break the 1.3700 level, raising the prospect of an eventual push lower. Long term trend line resistance remains at 1.3865 from the all-time highs at 1.6040 and ultimately this remains the key obstacle to a move through 1.4000. Support now looks pretty solid around the 1.3500 area and only a move below negates a potential retest of the highs. GBPUSD – the fall below 1.6480 yesterday looks set to open up a move lower towards 1.6300. Whilst we remain below last Friday's high the key day reversal day remains valid, and continues to suggest we may not see a move towards the 2011 highs at 1.6745. Rebounds could find resistance at 1.6580. EURGBP - Monday's failure at the 0.8300 level has prompted a pullback but the bullish engulfing day remains valid whilst above the 0.8200 area. As such the potential for a move towards key resistance at 0.8330 remains, as well as trend line resistance from last August highs at 0.8395. The major support remains at the 0.8160/70 level which is the 61.8% retracement of the entire up move from 0.7755 to the 2013 highs at 0.8815, and a new one year low. USDJPY - the US dollar continues to find bids around the 101.80 level, however we need to see a move beyond 103.80 to suggest a move back towards 105.50. A close below 102.00 the 38.2% retracement of the up move from 96.55 to the peaks at 105.50 could well see a move towards the 101 area, the 50% level. 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.