The decline in European markets seen yesterday carried over into the US session culminating in US markets posting their biggest two day declines since June, and looks like manifesting itself into another lower open this morning potentially putting European stocks on course for their second negative weekly finish in a row. It would appear that the weight of expectation surrounding an imminent tapering of asset purchases, along with a host of disappointing company earnings announcements, has prompted markets into thinking that a September taper is pretty much a done deal. What makes this conclusion all the more surprising is that apart from yesterday’s weekly jobless claims, the economic data was by and large pretty disappointing, coming in below expectations across the board. Nonetheless investors appear to be holding on to this belief despite the reiteration by St. Louis Fed President James Bullard that the FOMC needs to see more macroeconomic data before making a judgement on when to make a decision one way or another. Despite these comments, markets have driven fixed income interest rates to their highest levels since 2011 to levels which investors fear could well act as a brake on the recent improvement in economic activity. There is speculation that these rising interest rates were behind the sharp falls in US June housing starts and building permits a month ago. Given that rates have remained higher, the July data could well come in weak as well, though it would appear that markets appear optimistic of a rebound. July housing starts are forecast to rise 7.7%, up from June’s 9.9% decline, while building permits for July are also expected to recover, rising 2.9% from the -6.8% in June. Also due out we have University of Michigan confidence data for August which is expected to rise to 85.2 from 85.1. This seems rather optimistic given the recent disappointments seen in some of the most recent economic data, particularly the recent payrolls report. The only economic data out of Europe today is the latest CPI inflation numbers which is expected to come in at 1.6%, and the latest trade balance data, which is expected to continue to show a surplus for June, just like it did in May, though this is largely expected to be as a result of falling imports due to low demand. EURUSD – having broken above 1.3300 yesterday the 200 week MA at 1.3410 now becomes the next target. A break through here and the June highs could well send the euro back to the 1.3720 area but this is not the preferred scenario. While below 1.3400 the downtrend bias remains, but we need to break below the 1.3150 area and the low three weeks ago at 1.3135 to achieve this. A break through here reopens the risk of a move towards the trifecta of supports at the 50, 100 and 200 day MA above 1.3090. GBPUSD – the cable finally managed to overcome the 200 day MA and the downtrend line resistance above 1.5530, and now looks set to make an assault on the 1.5750 area and June highs. The 200 day MA should now act as support at 1.5520, while below that the 1.5410 area also remains important given it is also the low this week. Only a move below the 1.5410 area targets trend line support from the 1.4810 lows at 1.5260, with support also at the 50 and 100 day MA around the 1.5300 area. EURGBP – having broken below trend line support at 0.8535 from the May lows at 0.8405, we look set to now test the trend line support at 0.8490 from the 2012 lows at 0.7705. This marks the key level for the primary uptrend. A break of this trend line targets a return to the May lows at 0.8405. We should now see a barrier around the 0.8580/90 area. USDJPY – having failed at the cloud resistance between 98.60 and 98.80 yesterday the US dollar fell back sharply. This remains the barrier to a move back to 99.75 trend line resistance from the May highs at 103.75. The triangular consolidation continues to unfold and we could well see a return to the base of the consolidation at the 95.50 trend line from the February lows at 91.05. 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