After the exuberance of recent weeks, events in Iraq saw European and US markets finish down on the week last Friday. While we managed to see US markets finish off the week on a slightly positive note, this was partly due to the fact that oil prices started to fall back sharply from their recent highs, but they still finished the week at their highest levels for this year. Investors are likely to be no less twitchy this week, despite some evidence that the insurgents have started to get pushed back from their move south towards Baghdad. This means that oil prices are likely to remain driven by the winds of fate coming from events in Iraq. What this means for markets this week is anybody’s guess, but given that we still remain fairly close to record highs, we’re going to need to see a significant reduction in tensions, as well as a significant improvement in the data coming out of the US economy, to feel confident about the next move in equity markets this week. This uncertainty is likely to feed into a nervous start for European markets this morning, with a lower open, as we also look forward to see some key economic events this week including the latest FOMC rate decision. Also away from geopolitical risk there are also lingering concerns about the strength of the US economic recovery in Q2 after last week’s disappointing retail sales numbers for May. Given these concerns all eyes are likely to be on the latest US May CPI inflation numbers tomorrow, as well as the latest Fed meeting on Wednesday where the Fed is expected to continue its program of tapering asset purchases by $10bn a month, bringing the monthly total down to $35bn. While this is widely expected the overriding concern is likely to be that in light of recent data the Fed will cut its growth forecasts, and if they do so what that will mean for interest rates, particularly if the unemployment rate continues to decline. There will also be close scrutiny of what Janet Yellen says in her statement, given recent comments from Bank of England Governor Mark Carney. On the flip side the Bank of England appears to have the opposite problem with respect to playing down the strength of the UK economic recovery, though Bank of England Governor Mark Carney’s rather surprising chameleon like conversion to a much more hawkish tone last week did catch the market somewhat unawares, inviting speculation that there could well be a split vote on rates, when this month’s Bank of England minutes get released on Wednesday. This fear of a much earlier than expected rate rise may well have explained some Friday’s sharp losses on the London market, but before investors get too concerned it would be highly risky for the central bank to even consider hiking rates at a time when average incomes still lag well behind inflation. Tomorrow’s CPI inflation numbers for May are likely to narrow the gap slightly, but they would still be 1% higher, meaning the wage squeeze is expected to continue for some time yet. EURUSD – continues to find support just above this month’s low at 1.3503, with resistance at the 1.3580 level. We need a break either side to determine the next move. If we move below 1.3480, the lows this year we also have key trend support from the 2012 lows at 1.2045, which now comes in just above 1.3450. Only a move back through 1.3600 would argue for a move back towards 1.3675, with a break above targeting the 1.3780 level. GBPUSD – last week’s Carney inspired move through 1.6840 has brought the pound back towards the highs this year at 1.6998, and could well suggest a test of the 2009 highs at 1.7045. We have intraday support at 1.6910, while the major support lies all the way back at the 100 day MA at 1.6700. EURGBP – last week’s break through the December 2012 lows at 0.8035 now opens up the November 2012 lows at 0.7960. Any pullbacks need to get back above 0.8035 to retarget resistance at 0.8085. The pressure remains on the downside while we remain below trend line resistance from the March highs sitting just below the 0.8140 level. USDJPY – the next support lies at 101.50 and the 200 day MA, after last week’s move below 101.80, with a move back through the 200 day MA retargeting the range trade lows of last week near 101.00. The range highs remain anywhere below the 103.00 area and last weeks high at 102.75. 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.