With so much event risk looming into view at the back end of this week, in the form of central bank meetings and US payrolls data, it would appear that investors are starting to react with caution as markets slip back from their recent highs. Yesterday’s minor EU growth downgrades appear to have been one more catalyst that helped fuel this uncertainty. Despite this cautious tone European markets look set to open slightly higher this morning on the back of a positive Asia session as we get set for yet more economic data from Europe. After last week’s poor euro inflation numbers it was always going to be the case that this week’s European economic data would be dissected with a fine scalpel for clues as to whether we could see the ECB signal a looser monetary policy at tomorrow’s rate meeting. Certainly this week’s manufacturing PMI’s didn’t give too much direction one way or the other, being notable for further French weakness and an improvement in the German numbers. It seems likely that we could well see a similarly divergent picture from the October services numbers today. German services PMI is expected to remain at 52.3, while the French numbers are likely to remain at 50.2. The worrying weakness that we saw in the preliminary Spanish numbers a couple of weeks ago look set to be reinforced with the end of the tourist season with a slide to 48.1, from 49, while the Italian numbers look set to weaken too but not by as much, coming in at 51.7, from 52.7. The weakness in the Spanish numbers is especially troubling given that we’ve heard from nearly every EU politician and his dog that Spain is on the road to recovery. That maybe so but it looks like unemployment is starting to rise again, after yesterday’s 87k rise as its services sector struggles to compete with the recovery in the manufacturing sector. Also due out the latest European retail sales data for September is expected to show a decline of 0.4%, and German factory orders are expected to rise 0.5%, up from a 0.3% decline in August. The UK economy appears to be going full steam ahead if the latest October PMI’s are anything to go by, so it’s quite likely that the latest ONS industrial and manufacturing production data will bring the sterling bulls back down to earth. One of the great puzzles of recent months has been the lack of convergence between the PMI data and the ONS data when it comes to these sectors, particularly when the PMI’s show strong employment components. In the August numbers the ONS numbers were wildly different to the PMI’s. The September numbers released later this morning, it would appear, are expected to be more representative, with a 0.6% and 1.1% rise, for industrial and manufacturing production respectively. This recovery if sustained is certainly going to give the Bank of England some problems in sticking to its forward guidance if sustained into the end of the year. As it is we’ve seen UK gilt yield rise 20 basis points in the last four days. EURUSD – we continue to hold above the 1.3450 level for now, after last week’s bearish engulfing week, and as such the prospects for a rebound towards 1.3650 remain intact, while the trend line support from the 1.2750 lows holds. A break below 1.3450 could well signal further losses towards the 1.3000 level in the coming weeks. GBPUSD – yesterday’s strong rebound away from the key support at 1.5890/00 has brought us back to shy of the 1.6110 key resistance mentioned yesterday. We need to break back through the 1.6110 level to mitigate the downside bias. A break below 1.5900 has the potential to target a move towards 1.5750. EURGBP – yesterday’s break below the 0.8420 level now opens up the potential for a move towards the October lows at 0.8330. Only a move back above the 0.8450 level would undermine this scenario and retarget the 0.8520 area. USDJPY – trend line resistance at 99.15 from the May highs at 103.75 remains the key obstacle to a move back through the 100 level. Support remains just below the 200 day MA at 97.45 at 97.20 trend line support from the 25th Feb lows. 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.