It looks like a fairly subdued start for Europe’s markets this morning with German and UK inflation numbers front and centre for investors today, after a fairly positive Asia session. While the main focus has been on the latest plans for reform in China, the latest e-commerce data for Singles Day, one of the biggest on-line shopping days of the year, showed that China’s attempts to rebalance their economy away from manufacturing, to a more consumption based economy could well be starting to bear fruit. If last week was a big week for the US economy as a guide to future Fed policy in the wake of last Friday’s October payrolls report, then this week could be as equally important for the UK economy and expectations about the Bank of England’s ability to hold down interest rate expectations. Putting aside for one moment some of the contradictions thrown up by Friday’s US unemployment data, a rise in the unemployment rate, a fall in the participation rate and a sharp rise in new jobs added, can’t disguise the fact that the US labour market continues to struggle. The surprisingly strong number for October, as well as the strong revisions for previous months, has raised once again the outside possibility of a December taper, hence the somewhat confused reaction of the stock market. Was Friday’s jobs number as good as people think it is, or does it, as Ben Bernanke suggested earlier this year, overstate the health of the US labour market. With still no agreement on a budget or the debt ceiling, the likelihood of a December Fed taper still remains an outside bet, jobs numbers, last week’s GDP and ISM’s notwithstanding. Turning our attention back to Europe and the UK in the wake of last week’s surprise 25 basis point rate cut by the ECB, we get the latest German CPI numbers for October which is expected to show a monthly drop of 0.2%, and a year on year figure of 1.3%. The low numbers here do to some extent justify the decision by the ECB to reduce their headline rate, even if the decision was by no means unanimous, but with overnight rates around 0.1%, the cut does seem a token effort, by a central bank that is pushing the boundaries of what certain members of the council are prepared to tolerate. The fact is the ECB will need to do a lot more to keep a lid on the euro when so much uncertainty remains about the direction of the next Fed move. While falling prices appear to be raising concerns in Europe, there is no such concern in the UK, with the latest October CPI numbers expected to show a year on year drop from 2.7% to 2.5%. The month on month figure is expected to show a rise of 0.4%, partly as a result of rising energy bills not being totally offset by a fall in petrol prices. Retail prices are still rising at 3% a year with a month on month rise of 0.5%. The recent rebound in sterling is no doubt helping keep a lid on prices here, but they continue to remain sticky. It is not so much the inflation numbers that are moving the dial on rate expectations now in the UK in any case but tomorrow’s unemployment numbers which could well bring forward rate rise expectations even further, especially if the ILO rate falls to 7.6%, as I think it might in light of the recent improvement in monthly jobless claims data. Any improvement here will place even greater scrutiny in what the Bank of England tomorrow puts in its quarterly inflation report, where it could well raise its growth forecasts for this year and next, and could also revise its unemployment expectations. EURUSD – the break below the 1.3450 level last week shifts the focus back towards the downside and the bearish engulfing week of a couple of weeks ago. To stabilise the euro needs to get back above 1.3450, to delay a move towards the 1.3000 level. GBPUSD – we’re still within the broader channel of price action with resistance at 1.6250 and support at the 1.5890/00 area. We need to break back through the 1.6110 level to mitigate the downside bias. A break below 1.5900 has the potential to target a move towards 1.5750. EURGBP – we got a move back to the 0.8320 area, and held above the 0.8280 area which is the 50% retracement of the up move from 0.7750/0.8815. Having rebounded from the 0.8300 area we could well be heading for a squeeze back towards the 0.8450 level, but as long we stay below here the risk remains for a move back towards the 0.8300 area. USDJPY – having broken trend line resistance at 99.15 from the May highs at 103.75 the US dollar looks set to push back towards the 100 level, and the September highs at 100.60. Support remains just below the 200 day MA at 97.45 at 97.20 trend line support from the 25th Feb lows. 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.