While European markets managed to rebound somewhat yesterday the same didn’t apply to US stocks which finished in negative territory after oil prices, having been in positive territory for a large part of the trading day, turned sharply negative late on. With Chinese data remaining on the weak side and US manufacturing showing signs of weakness in the internals, following on from weak Richmond, Philadelphia and Empire manufacturing surveys, markets appear to be operating in a vacuum, looking for the next big driver to dictate the next move higher or lower. Having heard from ECB President Mario Draghi yesterday, his comments from the European parliament offered few indications as to whether he was overly concerned about a slightly weaker growth outlook for the euro area. This ambivalence came as somewhat of a surprise given the outcome of last weeks Fed meeting as many had expected a much more dovish tone to his comments. Yesterday’s manufacturing and services PMI data from Germany and France were a bit of a mixed bag with France’s improving slightly and Germany’s weakening slightly. Later today we have the latest German IFO business survey for September, and given Volkswagen’s problems in the last few days the findings may be somewhat dated, given how important VW is to the German economy. The business climate survey for September is expected to weaken slightly from 108.3 to 107.9, however if the survey were done today it seems likely that the outcome might well be more pessimistic. Yesterday’ s resignation of VW CEO Martin Winterkorn may well have taken some of the sting out of the current situation, but a lot of the main players behind the scenes remain the same, and it is hard to believe that a deception of this magnitude could be pulled off without a line of senior managers being party to it. Unpicking this maze of deception is likely to be the next puzzle to unravel, and it is hard to see how investors will be able to regain trust in senior management until there is a root and branch clear out. Attention today now turns to Fed Chief Janet Yellen later today as markets continue to try and unpick the reasons behind last week’s decision to hold rates steady. Currently markets expect a rate rise sometime this year with December the likely lift-off date, and investors will be looking for any indication from Ms Yellen, as to whether she shares the views of her colleagues. Williams and Lockhart that a 2015 lift off remains in play. One week to the day since last weeks Fed meeting the head of the Federal Reserve is due to give a speech on “inflation dynamics and monetary policy” a topical subject given the lack of any. It is also relevant given the line in the Fed statement about global economic events putting downward pressure on inflation in the near term. The expectation throughout most of this year is that US consumer spending would pick up as prices fell, but this hasn’t happened at anywhere near the pace you would get in a normal economic recovery. For example core durable goods for 2015 have been abject, in negative territory for the period since January. Expectations for the August numbers are for a rise of 0.2%, down from the 0.6% seen in July. The labour market continues to look resilient with jobless claims at two month lows of 264k last week, with an increase to 275k expected today. EURUSD – while we hold above the 50 day MA the risk remains for a move higher having managed to respect the lows this month at 1.1080. Only a move below here has the potential to retarget the lows this month at 1.1080 and lower towards 1.0820. While above these support levels the risk remains for a move back towards last week’s highs at 1.1400, and then on towards 1.1700. GBPUSD – the pound continued its falls yesterday falling below 1.5330 and sliding through trend line support from the April lows at 1.4565, with the prospect we could see a retest of the 1.5170 lows this month. Unless we manage to recover back through the 1.5330 area there is a real risk we could well see a return to the 1.5000 area. EURGBP – having been caught in a bear trap below 0.7250 the euro has squeezed all the way back towards the 0.7360 area. If we break back above here we could well see a retest of the 0.7420 area. This scenario is negated on move back below the 0.7280 level. USDJPY – price action continues to compress in the broad triangular consolidation with triangle line resistance at 121.00, and support at the 119.15 area. The US dollar still looks vulnerable to a return to the 116.20 area seen a few weeks ago, but for now appears to be range trading between 118.50 and 121.50. CMC Markets is an execution only service provider. 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