With US markets off for the Labour day holiday today market activity has the potential to be rather more thin than usual, with events in Ukraine once again likely to be at the forefront of investors’ minds, while economic data is likely to act as a reminder of the problems facing Europe’s leaders, while also showing that the US and UK economies still appear to be growing. Having seen US markets come off their best August performance in 14 years, once again we are forced to ask ourselves when investors might start to look around and remove their rose tinted glasses with respect to what’s going on in Europe, and in particular, events in Ukraine and Russia’s increasingly belligerent ratcheting up of tensions. Even without the problems of lacklustre economic growth in Europe, and the prospects of any action at this week’s ECB rate meeting, it is fanciful for investors to think that Central Banks would be able to mitigate an escalation of events in Ukraine, which at the moment, appear to be spiralling out of control at a rate of knots, yet the almost sanguine response to the events of the past week would seem to suggest exactly that. Last week we even heard the Russian President warning the EU and US about their intentions by mentioning Russia’s nuclear capability, which suggests the Russian leader is in no mood to be reasoned with! A weak and disjointed response by EU leaders, as well as the US is not helping, and investors need to face up to the reality that someone is going to need to back down for any sort of benign outcome here, and that doesn’t look likely at this time. Meanwhile the prospects for a recovery in economic growth remain slim in Europe and we will get reminders of that today when German Q2 GDP is confirmed at -0.2%. If that were just a one off it might be easier for markets to shrug it off but this morning’s final August manufacturing PMI’s are expected to show weakening economic activity throughout the euro area. Spanish, Italian, German and French, manufacturing PMI’s are all expected to weaken further and come in at 53.3, 51, 52 and 46.5 respectively. Despite weakening economic activity the prospects for ECB action this week remain slim despite last week’s inflation numbers from Europe which continued to point to weakness in prices for August, which came in at 0.3%, though core prices rose to 0.9%, which suggest the best we can hope for this week is for further jawboning at the press conference, as Mario Draghi fleshes out the details on additional stimulus measures that might be in the pipeline. If anything the bar for QE was raised even higher last week when the German finance minister Wolfgang Schaeuble stated that the ECB had run out of ways to help the euro area, firmly shifting the emphasis to politicians in Italy and France to take steps to boost the competitiveness of their troubled economies. There were also reports that German Chancellor Angela Merkel had expressed concern with the ECB President’s change in tone, though this can’t be certain. In the UK the latest manufacturing PMI for August is expected to come in at 55.1, slightly down from 55.4 in July and its lowest level in 12 months. Lending data for July is also expected to come in a little bit softer with consumer credit and net lending expected to come in slightly below June’s numbers. EURUSD – the risk for a move towards 1.3020 level remains after we break below the 1.3150 low of earlier in the week late on Friday, negating the bullish daily candle which turned out to be a bull trap. The euro needs to push back through the 1.3230 level and fill the gap from 22nd August. The 1.3020 area remains the ultimate target being a 50% retracement of the move from the 2012 lows at 1.2042 to the 1.3993 highs earlier this year. GBPUSD – the pound managed to avoid its eighth weekly decline in a row on Friday but continues to find itself capped at 1.6610/15. A failure to break below last week's low at 1.6539 could well see a sharp short squeeze towards the 200 day MA at 1.6685. A move below 1.6520 targets a move towards 1.6460 and the lows in March. EURGBP - the euro started to slip back towards the end of last week breaking back below the 0.7950 level and potentially heading back towards the July lows at 0.7875. A break below here opens up 0.7785, the 2012 lows. We could still see a move back towards the 0.8000 level in the short term, but overall the trend remains lower, while below 0.8000 trend line resistance from the August highs. USDJPY - the US dollar continues to look a little top heavy above the 104.10/15 area with the risk we could fall below the 103.50 area towards the 102.80/103.00 area. The next resistance sits in the 105.50 area which remains a huge level given it was the recent high from the end of last year, as well as the 61.8% Fibonacci retracement of the decline from the 2007 highs at 124.13 to the lows 75.58 in 2011. 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.