Yesterday’s strong rebound in equity markets saw over half of last week’s losses wiped out in a single session, but stopped short of getting close to the highs levels seen last Monday. It would appear that some bargain hunting after two successive weeks of declines as well as a growing belief, possibly misplaced that the Fed will do nothing this week saw European markets post some of the best one day gains since October this year. Whether yesterday’s gains can be sustained so close to the culmination of the two day Fed meeting tomorrow remains to be seen, with European markets set to open mixed this morning. This belief that the Fed will stay its hand appears to be predicated on the perception that below par inflation will keep the Fed on hold given that most other economic data appears to be pointing in the right direction, and doesn’t appear to be an obstacle to a taper given St. Louis Fed James Bullard’s comments last week. This is why today’s US CPI numbers could well be instructive in that regard with expectations that the November numbers could well see a rise from 1% to 1.3% on annualised basis. While most of this weeks attention is likely to be fixed on the outcome of tomorrow’s final Fed meeting of 2013, there is also some equally important data out from the UK in the next few days which could have an equally important bearing on events here in the UK over the coming months. We start this morning with the latest inflation data for November which is widely expected to remain at multi month lows on an annualised basis of 2.2% on the CPI measure. The last time CPI was below this level was back in December 2009 when it was at 1.9%. The only concern remains with last month’s energy price rises announced by the energy companies which surely would be expected to have an upward effect on prices, yet no-one seems to be pricing this in. The month on month number is expected to rise 0.2%, which would suggest that lower prices elsewhere in November could be taking some of the sting away. Nevertheless retail price inflation is expected to continue to remain high, edging up to 2.7%, from 2.6%, and further prolonging the income squeeze being felt by UK consumers. In Europe inflation appears to be less of a problem in the UK, but no less of a headache, more a case of a lack of inflation with the latest November CPI numbers across the whole euro area expected to remain at 0.9%. It was a sharp drop in these numbers that prompted the November rate cut, though given Draghi’s comments yesterday another one seems some way off. The latest German ZEW numbers for December are also expected to show an improvement, coming in at 55, up from 54.6, though we could well see a disappointment here given the sharp declines in the DAX seen in the past couple of weeks EURUSD – the failure to overcome the highs this year above 1.3830 continues to cap the upside and could signal a steeper pullback towards the 1.3620 support. The October highs at 1.3830 remain a key resistance, while behind that we have long term trend line resistance from the all-time highs at 1.6040 which comes in at 1.3935. Only a break below the 1.3480 level would then argue for a move to the lows last month at 1.3300. GBPUSD – since last week’s and the highs this year at 1.6467 the pound has steadily drifted lower but without taking out the 1.6240/50 level. This remains the key level for a continued push higher towards the 1.6520 level. We also have trend line resistance at 1.6340 from the highs this month. Only a move below the 1.6250 level argues for a deeper pullback towards 1.6110. EURGBP – last week’s break through the 0.8400 level brings with it the risk of a move towards the 0.8470/90 area and trend line resistance from the 0.8770 highs. For the move towards 0.8170 to play out we need to see a move back below the 0.8370 area, which acted as initial resistance after the recent low at 0.8250. USDJPY – a fresh 5 year high at 103.92 last week didn’t provoke the push up towards the 105.70 level anticipated. This remains the key level being the 61.8% retracement of the down move from the 2007 highs at 124.30 to the 75.30 lows. We have trend line support at 102.75 from the 97.60 November lows which if broken could see a move towards 101.60 the lows this month, followed by 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.