European markets look set to start firmly on the back foot this morning after US markets sold off in the afternoon session over concerns that a rapid build-up of Russian troops on Ukraine’s eastern border might be the beginning of a new chapter in the stand-off between Russian separatists and the Ukrainian government, which the separatists appear to be losing. Comments made by Polish foreign minister Radoslaw Sikorski that the move could be a prelude to a possible invasion appear to have been the catalyst for an afternoon sell-off on a day when the markets were already struggling to rally despite some fairly positive US economic reports. As reports of a humanitarian crisis in the east of Ukraine increase, concerns are growing that President Putin could use these sorts of reports as justification for a military incursion, which would raise the stakes with the EU and the US and this particular crisis to a whole other level. It almost beggars belief that a mere couple of days after commemorating 100 years since the start of World War One, that a leader in Europe and a Russian one at that, would even contemplate raising tensions to such an extent that another conflict could be even possible. With each escalation of this crisis the scope for any type of mis-step increases exponentially, and that remains a real concern. In respect to economic data the best ISM non-manufacturing reading since 2005 should have been a catalyst for a strong rebound in US stocks but it wasn’t, given that an improving US economy brings forward the day that the Fed will eventually have to consider a rise in interest rates, which meant that to a large extent the move lower was akin to pushing at an open door. In Europe the economic data continues to come in mixed with Spain continuing to outperform Italy and France, whose levels of economic activity remain worryingly weak. As if to confirm these concerns Italian Q2 GDP is expected to show that the economy expanded by 0.1%, reversing the 0.1% contraction seen in Q1. Germany’s economy still looks fairly resilient, but even here concerns remain with factory orders for May dropping sharply by 1.7%. Today’s June numbers are expected to show a rebound of 0.8%, as German businesses continue to worry about the effects of Russian sanctions on their businesses for the remainder of the year. In the UK yesterday’s stronger than expected July services PMI has once again reignited speculation that we could see pressure for a rise in interest rates at tomorrow’s Bank of England rate meeting. Unfortunately we will have to wait at least a couple of weeks, when the minutes are released to determine whether the recent construction and services PMI data seen this week are enough of a reason for UK policymakers to deviate away from the “as you were” strategy that has been in place for the last five years. A lot could well depend on how good or bad todays ONS manufacturing and industrial production data for June is. Last month we saw sharp drops in both, of 1.3% and 0.7% respectively, numbers that diverged sharply from the equivalent PMI data for the same month. There appeared to be no satisfactory explanation of this divergence, apart from the recent slowdown in Europe, but given the continued resilience in the independent PMI’’s we could well see some revisions to the May numbers, along with a rebound in June of 0.6% for manufacturing and industrial production. If the numbers come in better than expected then we can expect to see the usual speculation of a rate hike in the latter part of this year, however if they remain weak then we could well see the pound slip back towards its recent lows. EURUSD – the euro continues to come under pressure ahead of this week’s ECB meeting with the prospect for a move towards the November lows at 1.3300 remaining. We have resistance at the previous lows at 1.3475, but would need to see a move back through 1.3500 to retarget the 1.3570 level and then on to 1.3640. GBPUSD – the current rebound from recent lows needs to overcome the 1.6920 area to retarget 1.7000. The 1.6780 level remains a key support with a break retargeting 1.6700. EURGBP – after failing at the 200 day MA just below 0.8000 the euro has drifted back towards the 0.7900 area with the bias remaining towards the downside with support at the 0.7870/75 area. The pressure remains for a move towards 0.7780, with any rebound needing to overcome the 0.8000 level to stabilise in the short term. USDJPY – while below the recent range highs at 103.00/10 the risk of a pullback remains, particularly given that US yields slipped back sharply on Friday. There is nothing to suggest though that we won't continue to trade within the broad range that we've been in over the last six months. We have resistance at 103.00, and support at 101.80. 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