Friday’s sharp reversal on Wall Street, in the wake of Bullard’s taper comments looks set to translate into a mixed open for Europe this morning despite the victory of Angela Merkel in the weekend German elections which returned her to power for a historic third term. The electoral maths still look somewhat uncertain with the slim possibility that Merkel could get her own majority, but the likely outcome looks set to be a grand coalition with the SPD. In any event her old coalition partners the FDP appear to have missed out badly, with the new euro sceptic party Alternative for Deutschland, the AfD, doing particularly well, coming in as it did from a standing start. Whatever the look of any government that is formed, and this might take several days, one of the key factors that did come out of the campaign was the increasing opposition of a rising number of German voters to further bailouts of what they perceive as fiscally irresponsible peripheral European economies. Any new government that chooses to ignore this rising scepticism in subsequent months is likely to come unstuck at the ballot box in any new state or European elections. With troika inspectors already in Athens to discuss the latest lack of progress in Greece’s latest bailout plan and the current shortfall in the 2014 and 2015 budget plans, it is a message that could well resonate in the coming months, in terms of what flexibility international lenders are prepared to allow the bailed out country as it grapples with social unrest as it seeks to balance the books. As it is austerity fatigue in Greece is manifesting itself in the form of strikes last week as well as further strikes this week. While the make-up of the next German government is likely to be micro analysed from every angle in the coming days, there still remains the small matter of economic data from both France and Germany to be mulled over today as well as the latest September flash manufacturing and services PMI’s are released, with the German numbers set to reinforce why Merkel remains a popular figure in German politics. Expectations for manufacturing and services PMI’s are expected to come in at 52 and 53 respectively, firmly in expansion territory, while the Bundesbank is also set to release its latest monthly report on economic conditions in the German economy The same unfortunately cannot be said for the comparable French numbers which are expected to come in at 50.1 for manufacturing and 49.3 for the services sector. The European numbers, on the other hand are expected to reflect the improvement in the German numbers coming in at 51.8 for manufacturing and 51.1 for services, and as such raising hopes that the European economy as a whole will continue to improve, with a trickledown effect helping the smaller struggling economies, which could do with maintaining the improvement seen in recent months. EURUSD – last week’s break above the 1.3400 area opens up the possibility of a return to the high this year at 1.3710. Any pullbacks are likely to find support at around the 1.3420 area, and it would need a break below here to retarget the lows this week at 1.3320. GBPUSD – the pound appears to be running out of steam after its second successive weekly close above the 200 week MA at 1.5740. Having seen a the pound move below 1.6000, the risk is that a break below 1.5980 could suggest a move towards the lows last week at 1.5880 and the medium up trend support now comes in at 1.5730 from the 1.4815 lows. It still looks possible we could well see a retest of the highs this year at 1.6370, but for now the downside appears to be weighing. EURGBP – last week’s strongly bullish daily candle suggests we could see a move back towards the 0.8500 area and the 200 day MA, as we managed to pull back off the lows at 0.8350. The downtrend still remains intact but we may have to wait awhile for the move towards 0.8280, the 50% retracement of the 0.7755/0.8815 up move. USDJPY – having held above the trend line support at 97.30 from the June lows at 93.85, as well as the daily Ichimoku cloud support last week the US dollar has rebounded strongly but has so far failed retest the highs two weeks ago at 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