After the declines of recent days investors in Europe appeared to take a day of reflection yesterday, struggling to make any headway despite the weekend news that Portuguese authorities had decided to bailout its biggest bank and parcel up all the toxic assets into a bad bank, leaving the senior bond holders and depositors intact in a new, good bank. Once Europe’s markets had closed US markets appeared to have no such reservations picking up the baton and running with it, to close higher for the first time in four days, and in the process dragging the Dow back into positive territory for 2014. This positive close is likely to translate into a positive European open this morning with the main focus expected to be on a whole host of services PMI readings for July starting with Spain, Italy, France and Germany, followed by the UK and then the US. Last week we saw some weaker than expected manufacturing PMI numbers which appeared to suggest that Q3 in Europe was likely to be quite challenging, against a backdrop of falling prices and slowing economic activity. Today’s numbers may paint a positive picture in some areas, namely Spain where GDP appears to be recovering slowly, but France remains a particular concern, with rising unemployment and an economy mired in quicksand, and a paralysed government. Spain July services PMI is expected to show an improvement to 55.1 from 54.8, just behind Germany at 56.6, but Italy services is expected to slow from 53 9 to 53.2, while France is expected to stagnate at 50.4. In a sign of the pressures that French President Hollande is under, ratings agency Moody’s downgraded its growth targets for 2014 and 2015, and said that the country was likely to miss its fiscal targets again for 2014 and 2015. Given that these targets have already been extended twice, some countries who have already experience significant fiscal readjustment already, might be forgiven for thinking that there appears to be one rule for them and one for others, who talk about reform but never actually go into details. The focus then turns to the UK economy and the latest service sector PMI data for July. In the July data seen to date we saw a very strong construction number yesterday, helped in no small part by housebuilding activity which grew at its fastest rate since late 2003. Hiring also rose sharply which bodes well for a continued fall in the unemployment rate in the coming months. Today’s services numbers will, it is hoped, continue the positive tone with an improvement on June’s 57.7, coming in at 58.1, which is expected to bode well for a good start to Q3. After the slight disappointment in the US from Friday’s payroll numbers and the weaker wage growth data, we could well get more mixed signals this afternoon with services PMI and ISM services data for July which are both expected to show strong readings. US Services PMI is expected to come in at 61, while the ISM is expected to improve to 56.6 reflecting a continued improvement in US data since the slowdown in Q1. Of more importance will be the employment component of the index which came in at 54.4 in June and needs to show further gains to suggest that the US economy continues to recover. EURUSD – we saw quite a strong rebound off the 100 week MA last week at 1.3355 and could be susceptible to a bit of a short squeeze after Friday’s US dollar sell-off. If we get back above resistance at the previous lows at 1.3475, we could see a move to retarget the 1.3570 level and then on to 1.3640. GBPUSD – having undergone its worst weekly fall since October last year the pound broke below its 100 day MA at 1.6845 which could well trigger further weakness towards the 1.6780 level initially and then 1.6700. Any rebounds now need to get back through 1.6920 to stabilise in the short term and argue for a retest of 1.7000. EURGBP – the euro has managed to squeeze above the trend line from the March highs at 0.7980, but appears to be struggling to overcome the 0.8000 level. This needs to be broken to target a deeper pullback towards 0.8070, prompting an even larger pullback towards 0.8200. USDJPY – while below the recent range highs at 103.00/10 the risk of a pullback remains, particularly given that US yields slipped back sharply on Friday. There is nothing to suggest though that we won’t continue to trade within the broad range that we’ve been in over the last six months. We have resistance at 103.00, and support at 101.80. CMC Markets is an execution only provider. 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