If things weren’t bad enough already as European markets, led by the German DAX, dropped more last week than they did in the previous quarter, then ratings agency Standard and Poor’s pretty much put the cherry on the cake after the close on Friday when they not only downgraded France from stable to negative, but also stripped Finland of its triple A credit rating. Standard and Poor’s cited the lack of fiscal space and a stagnating economy, and stated that they thought it unlikely that France would be able to hit its 2017 3% budget target. The news isn’t likely to get any better for France this week when they are expected to get a less than enthusiastic reception from their European neighbours at today and tomorrow’s Ecofin meeting, with the prospect that the European Union could reject the draft budget agreed by French ministers earlier this month and demand a new one. It is the German DAX that concerns the most though after a string of German poor data last week prompted concerns that the previously German economy is starting to stall out, and saw the previously resilient German benchmark index go into freefall after breaking this year’s low at 8,900. Of greater concern was the fact that we look to have broken out of a key topping pattern which could see another 10% drop in the coming weeks towards 8,000. The admission last week by ECB President Mario Draghi that stimulus measures on their own wouldn’t be enough to ensure a recovery, and that reform was also urgently needed also spooked investors, for the reason that the political will in France and Italy simply isn’t there to consider the types of reforming measures that could or would make a significant difference. The main concern now given last week’s sharp declines is as to whether the declines seen in the past three weeks are the start of a sharp move lower, or merely another dip, or buying opportunity of the type we’ve seen so often in the past five years. Some investors are hoping it is exactly that, and the start of earnings season in the US will deliver a welcome boost and stem the selling and prompt a rebound, but this feels different, particularly given all the geopolitical concerns, Ebola and the plunging oil price. Some of this week’s economic data might well help in anchoring interest rate rise expectations in the UK and US with weak inflation numbers pushing back the likelihood of a possible tightening of monetary policy in the near future, which might help in terms of keeping a floor under the market, but for now it looks as if European markets will pick up where they left off last week, set to open lower this morning, gaining no comfort at all from Chinese trade data this morning which showed a marked improvement in September than it did in August. Both imports and exports showed a marked improvement. Last week’s FOMC minutes have already pointed to a Federal Reserve concerned about a stalling recovery in the rest of the world, which is likely to keep US policymakers even more cautious about any premature move on policy in the coming months. This week’s European data isn’t likely to offer much comfort either with tomorrow’s German ZEW set to weaken further in October. EURUSD – last week’s rebound stalled out at the 1.2785/90 area which was the previous 61.8% Fibonacci retracement of the 1.2040/1.3995 up move. The failure to push through this level has seen us slide back but this far we’ve remained above the 1.2570 level. Below 1.2570 argues for a retest of the 1.2500 level and then 1.2400. While last week’s candle was a positive one the signals from it were ambiguous. GBPUSD – after peaking at the 1.6220/30 level last week we slid back towards 1.6000. Last week’s high remains the obstacle to further gains. If we drop back through the 1.6020 level we remain at a risk of a move back towards 1.5950 on the way to 1.5720. EURGBP – having failed to overcome the 0.7900 level last week we have started to drift lower. The main resistance remains at 0.7930 level and while below here the risk remains for a move back towards 2012 lows at 0.7754 and last week's lows at 0.7765. USDJPY – the prospect of a test lower has risen after we posted a bearish weekly candle last week. Having failed to break back through 108.50 at the end of last week the prospect of a move back to 106.20 has risen after we broke below the lows of the previous two weeks. Above 108.50 retargets the highs at 110.00. 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.