We come into what is the final full week of trading before the Christmas break and 2013 on the back of a sharp decline in risk appetite over the past two weeks against a backdrop of nervousness about what the final Fed meeting of 2013 will bring in terms of potential changes to US monetary policy, as well as a slowdown in economic data out of some parts of Europe as well as China. The latest HSBC manufacturing PMI for December slowed to 50.5, a three month low, and there is some concern that the recent recovery in Europe could well be heading the same way.. Given the gains seen this year it could be argued that the recent declines are a natural consequence of some end of year profit-taking after what has been a particularly good year for equities. While this is undoubtedly true it is also true, that despite the gains seen this year, there is a sense that these gains don’t reflect the underlying fragility of the various economies in Europe and to a lesser extent in the US. While this week’s Federal Reserve meeting is front and centre of this week’s calendar, it is by no means the only item on this week’s agenda. Compared to previous years, events in Europe in the latter part of 2013 have had an almost surreal calm to them, prompting some to suggest that the worst of the crisis in Europe is now behind us. Certainly the recent stabilisation in European bond markets would seem to suggest that is the case but while we’ve seen some improvement in some of the economic data coming from the euro area, which came out of recession this year, fiscal fragmentation still remains with concerns about the French economy in particular, starting to raise concerns about the recent recovery. While we’ve seen improvements in the manufacturing and services PMI data for Italy, Spain and Germany in recent months Europe’s second biggest economy appears to be going backwards and today’s release of preliminary December manufacturing and services PMI data for France and Germany is expected to confirm this continuing divergence. The latest German manufacturing and services PMI is expected to stay in expansion territory at 53 and 55.3 respectively, but the French data is expected to remain weak at 49 and 48.7 respectively, but still an improvement on the November numbers. If the French numbers disappoint again we can certainly expect more calls for the ECB to become ever more accommodative as we head into 2014, however given last week’s comments from ECB President Mario Draghi, when he urged other actors to play their part in European reforms, further action could well be some way off, a point he could well reinforce when he speaks later today. Later in the day attention turns back to the US with the latest industrial and manufacturing production data for November. Some good numbers here after the poor numbers in October will once again focus market attention on this week’s FOMC meeting. It would certainly be a surprise if the latest data were to disappoint given the recent improvements seen in the most recent ISM and PMI data as well as a fairly positive Beige Book. Expectations are for a rise of 0.6% in industrial production and 0.4% in manufacturing. Empire manufacturing for December is also expected to show an improvement to 4.9 from the sharp drop seen in November of -2.2. EURUSD – the failure to overcome the highs this year above 1.3830 has so far provoked a small pullback which could signal a steeper pullback towards the 1.3620 support. The October highs at 1.3830 remain a key resistance, while behind that we have long term trend line resistance from the all-time highs at 1.6040 which comes in at 1.3935. Only a break below the 1.3480 level would then argue for a move to the lows last month at 1.3300. GBPUSD – since last week’s and the highs this year at 1.6467 the pound has steadily drifted lower but without taking out the 1.6240/50 level. This remains the key level for a continued push higher towards the 1.6520 level. Only a move below the 1.6250 level argues for a deeper pullback towards 1.6110. EURGBP – last week’s break through the 0.8400 level brings with it the risk of a move towards the 0.8470/90 area and trend line resistance from the 0.8770 highs. For the move towards 0.8170 to play out we need to see a move back below the 0.8370 area, which acted as initial resistance after the recent low at 0.8250. USDJPY – a fresh 5 year high at 103.92 last week didn’t provoke the push up towards the 105.70 level anticipated. This remains the key level being the 61.8% retracement of the down move from the 2007 highs at 124.30 to the 75.30 lows. We have trend line support at 102.50 from the 97.60 November lows which if broken could see a move towards 101.60 the lows this month, followed by 100.60. 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.