Despite yesterday’s weak finish in the US, Europe’s markets look set for a positive start this morning as the continued uncertainty about the next move in equity markets continues to translate into choppy trading. Expectations about some form of imminent monetary stimulus from China have been rising, and this appears to be helping boost sentiment, but these are likely to be misplaced given the Chinese authorities determination to make their banks more circumspect in their lending practices. In the last few days the overall direction for European markets has been somewhat difficult to predict with Europe’s core indices well off their 2014 highs, even though Italian markets posted multi year highs last week. Investor sentiment is being pulled all over the place as markets wrestle with a prospective improvement in European economic data against a backdrop of geopolitical uncertainty in Ukraine, Russia and Turkey, as well as fears of a slowdown in China, at the same time as the US Federal Reserve continues to dial back its stimulus dial. Yesterday’s manufacturing PMI data while not terrible was still below market expectations for both Germany and the US and when set against the prospect of a reduction in stimulus left investors few reasons to indulge in fresh buying of stocks. Concerns about a growth plateau in Germany were reinforced yesterday, after manufacturing and services PMI came in below expectations for March. With ZEW investor sentiment nose-diving last week we could see further weakness if the latest IFO survey comes in similarly weak this morning. Given Germany’s exposure to both a slowing China and a Russian economy set to slide into recession, it would be surprising if we didn’t see a pullback in sentiment. The only question will be by how much with expectations of a drop in the business climate index to 110.9 from 111.3. In the UK the squeeze on consumer incomes looks set to ease further today with the latest consumer price index for February set to show a year on year fall from 1.9% in January to 1.7% in February, which would be the lowest level since November 2009, when it came in at 1.5%. On the monthly measure expectations are for a 0.5% rise, but another decline in inflation could well exert further downward pressure on the pound, which has been struggling to rally in recent sessions. It would also narrow the gap to average incomes to 0.3% after last week’s 1.4% rise. The fall in CPI is expected to be driven partly by lower energy costs and falls in shop prices, while RPI is expected to come in at 2.6%, down from 2.8%. Producer prices are also expected to remain lower which suggests that inflation could well remain well anchored for some time to come. The main concern remains around house prices which are expected to show a rise of 6.6%, up from 5.5% in December, raising concerns once again of overheating in the housing market. Back in the US the latest consumer confidence numbers for March are expected to show a small increase to 78.6 from 78.1 in February, while new home sales for February are expected to show a modest drop of 4.9% after January’s blow out and rather puzzling 9.6% increase. With markets still absorbing Janet Yellen’s “around six months” comments of last week we get some more FOMC policymaker jawboning later today in the form of Atlanta Fed Lockhart and Philadelphia Fed Plosser talking on the US economy later in the day, after US markets close. EURUSD – the euro continues to remain steady above last week’s low at 1.3750 pushing above 1.3850 yesterday. The euro needs to close back above 1.3850 to stabilise and suggest a retest of the recent highs at 1.3970. The 1.4000 level remains a key psychological barrier to a move towards 1.4200. GBPUSD – the pound rebounded from 1.6460 yesterday but remains under pressure with the possibility we could well test the 100 day MA 1.6425, which acted as support in February. A break below 1.6425 opens up the road for a move towards 1.6300. The pound needs to get back above the 1.6570 area to suggest a retest of the highs last week at 1.6650. EURGBP – yesterday’s rally seems all wrong but nevertheless has thus far stayed below the 0.8400 level keeping the bearish engulfing candle seen last week intact. The resistance at the 200 day MA at 0.8425 remains a key obstacle to further gains. Only a move below 0.8320 retargets the 0.8270/80 area. USDJPY – the rebound seen over the last week or so needs to get back above the 102.70/80 area or run the risk of a revisit of the 101.20 area which has acted as strong support for the whole of March. As such the risk remains on the downside while below the 103.00 area. The focus still remains on the February lows at the 100.70/80 level. The 200 day MA is also a key level at 100.35. 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.