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European markets have had a disappointing end to the week as we head in to the end of the quarter, with the FTSE on course to close over 14% lower for Q3. The biggest fallers are the financials led by weakness in the Asian banking sector over concerns about the property sector in China. HSBC (HSBA LN) and Standard Chartered (STAN LN) have led the slide lower, while the mining sector has also remained under pressure after Chinese HSBC manufacturing PMI for September was confirmed in negative territory for the third month in a row, reinforcing fears of a continued slowdown in China. With the People’s Bank of China reiterating that inflation remained a concern the likelihood of monetary policy staying tight and acting as a growth brake is tempering optimism in this sector.

Vedanta Resources (VED LN) is leading the basic resource sector lower. Industrial stocks are also under pressure along with retail after German retail sales for August plunged 2.9% on the month, well below expectations of a 0.5% decline.

Luxury retailer Burberry (BRBY LN) has continued its recent decline, on slowdown fears in both Asia and European markets.

Intertek (ITRK LN) is the biggest faller on the back of a downgrade from UBS. The only bright spots are silver miner Fresnillo (FRES LN), gold miner Randgold Resources (RRS LN) and tobacco manufacturer Imperial Tobacco (IMT LN).

U.S. markets followed European markets lower as concerns about future growth continue to temper risk appetite, with growth concerns out of China causing some weakness into the open.

Financials followed in the footsteps of Europe leading the declines with Bank of America and JP Morgan lower.

The latest inflation figures showed that the Fed’s preferred inflation measure, (PCE) the rate at which it assesses its rate policy, showed that core inflation for August, remained unchanged at 1.6%.

With personal income and spending sliding back it could be argued that there could be a case for levering the door ajar for the possibility that the Fed may look at trying to make the case for further full blown QE in the near future. In slightly more positive news the Chicago PMI for September rose more than expected to 60.4, with new orders rising and prices paid falling.  The final figure for University of Michigan confidence for September also rose slightly, coming in at 59.4, above expectations of 57.8.

The Euro has slid back towards the lower end of its recent range after German retail sales plunged sharply in August, by 2.9%, well above expectations of a decline of 0.5%. Even hotter than expected September European inflation data, coming in at 3%, above expectations of 2.5% wasn’t enough to stop the euro falling, despite the fact that it makes a rate cut next week much less likely. The surprise jump has been put down to the increase in Italian VAT from the austerity budget.

The biggest fallers have been the commodity currencies like the Norwegian krona, Canadian dollar and the New Zealand dollar after the surprise ratings downgrade overnight by Fitch who cut New Zealand’s triple “A” rating. The U.S. dollar has been the net gainer today, as money flows into U.S. treasuries.

Gold prices have remained above the $1,600 level as money flows out of equities and into the perceived safe haven of the yellow metal.

Crude oil prices have slid back from yesterday’s highs, but still within their recent ranges as risk appetite ebbs as concerns remain about future demand in the face of weakening economic data. The Brent contract has just seen the 50-day MA cross below the 200-day MA in a death cross pattern as it looks to test towards the trend line support from the 2008 lows at $36, which comes in around the $95 mark.

Copper has had a torrid quarter, down over 20% into bear market territory, as concerns about Chinese inflation and weak PMI’s weigh on demand.

After the successful ratification of the German EFSF vote yesterday attention now turns to Austria, who is also expected to ratify the 21st July agreement later today. The biggest obstacle is Slovakia where they are due to vote on 25th October and where the government is struggling to muster support, against a fierce backdrop of opposition from certain elements in the opposition parties.
 
While markets breathed a shallow sigh of relief that Europe’s biggest economy is now on board for this particular change, everyone knows the problem has once again been pushed out into the future again.
 
There is also the added problem that voters within the various European countries are now waking up to the fact that this could well be a problem without an end, and without any indication what the final bill is likely to be.
 
This will make progress a lot trickier in the future as German voters start to see themselves as Europe’s cash machine. If the troika return from Athens and Greece gets its next bailout tranche, attention will then turn to the next G20 summit in Cannes at the beginning of November, where more radical measures may well have to be considered, otherwise we could well be on course for the same charade to be repeated in December.
 
For now the small matter of economic data returns to the fore with a raft of data out from across Europe this morning beginning with German retail sales for August which are set to show a decline of 0.5% for the month.

Inflation data is also due out from the Eurozone and Italy with price pressures set to remain fairly benign in these regions, with Eurozone CPI expected to come in at 2.5% for September, unchanged from August. Italian CPI is set to rise slightly to 2.6% but not by enough to stop speculation of a possible ECB rate cut at next week’s meeting. As explained in previous notes this is unlikely to happen but the ground for a cut could well be prepared in the press conference after the rate meeting. Italy has bigger problems in any case after yesterday’s bond auction saw Italy pay high rates on August unemployment data for Europe is also due out later with expectations that the unemployment rate will remain at 10%, despite much better then expected German unemployment figures yesterday.
 
In the UK the Pound had a better day yesterday after better then expected mortgage approvals and consumer credit lending data, while today’s Gfk consumer confidence survey for September showed that the consumer remains extremely pessimistic about the economic outlook, even though there was a slight improvement to -30, improving slightly from August’s -31 reading.
 
In the U.S. the Fed’s preferred inflation measure, (PCE) the rate at which it assesses its rate policy, is expected to show a further rise in core inflation for August, rising from 1.6% to 1.7%, making it much more difficult to make the case for further full blown QE in the near future. The final figure for University of Michigan confidence for September is expected to remain unchanged at 57.8.
 
EURUSD – the single currency continues to find the air a little thin above 1.3670 and needs to see a break above 1.3700 to signal a test of 1.3780. On the other side of that it needs a break below 1.3500 to retarget the lows this week below 1.3400. The odds continue to favour a move towards 1.3000, but given the sharpness of the recent down move we could well see a period of consolidation first. It needs a close below 1.3400 to target 1.3050 which is the 61.8% retracement of the same move.
 
GBPUSD – once again the pound found progress above 1.5700 difficult to sustain pushing back down towards the 1.5500 level before rebounding. It would appear that a range of 1.5500/1.5700 starting to build up with a break of 1.5500 reopening the lows at 1.5330. A sustained break above 1.5710 could well see the 1.5780 level and even 1.5820, which would be 38.2% retracement of the decline from the August highs at 1.6618 to the September lows at 1.5330. The recent lows remains the main obstacle to further declines in the longer term towards 1.5190 which remains the probable longer term outcome, given that the 50 day MA has now crossed below the 200 day MA, and in the process posted a “death cross” reversal signal.
 
EURGBP – struggled once again yesterday to sustain any moves above the 0.8720 level keeping the broad range trade intact between the recent lows around 0.8650. Any sustained move beyond 0.8720 should run into trend line resistance from the 0.9085 highs now at 0.8785. The bias remains for further losses while below this resistance.
The recent range lows at 0.8535 remains the likely next target while below 0.8720.
 
USDJPY – continue to play the rallies off support from around the 76.00 area. As such the bias remains alive for the prospects of further gains, on a break above 77.20. Any move below the key lows at 76.00/30 could well see further U.S. dollar losses towards 74.50.

Europe’s markets had a relatively quiet morning session trading nervously ahead of the German EFSF vote this morning which was passed unanimously. The afternoon has been somewhat different as investors took comfort from the outcome of the vote and positive U.S. economic data as we head in to the end of the week and the quarter.

While the main markets in Europe have responded somewhat more positively to the Bundestag vote, and the positive U.S. data, the FTSE has lagged behind, held back by soft mining stocks as we head into the end of the week and the quarter.

Vedanta Resources (VED LN) and Antofagasta (ANTO LN) are the largest sector fallers on a weak copper price. The main movers higher are the financial stocks led by Barclays (BARC LN) and Royal Bank of Scotland (RBS LN).

Tate and Lyle (TATE LN) is at the top of the leader board higher after reporting that it expects to report numbers in line with expectations over the full year. On the downside Man Group (EMG LN) has carried on from where it left off yesterday, continuing to fall, down another 3%. Fashion retailer Burberry (BRBY LN) is also getting a bit of pasting on the back of yesterday’s poor UK retail sales numbers as well as concerns that a slowdown in China could well impact its margins. Chip maker ARM Holdings (ARM LN) is also lower on a read across from the U.S. after chip maker AMD cut its Q3 sales forecasts.

U.S. markets look set to open higher boosted not only by the Bundestag vote but also by much better than expected weekly jobless claims, down from 423k last week to 391k, while U.S. Q2 GDP came in at 1.3%, slightly above expectations of 1.2%.

The gainers have been led by financials with JP Morgan and Bank of America higher. Hewlett Packard is also making good gains after yesterday’s sharp falls. In company news chip maker (AMD) Advanced Micro Devices has dropped sharply after the company cut its Q3 sales forecasts last night.

August pending home sales came in slightly better than expected declining 1.2%, slightly improving from last month’s 1.3% decline.

The Euro has had a somewhat mixed day but is broadly positive after the Bundestag vote, however record high bond yields at a series of Italian auctions continue to point to stresses in Europe, and the banking system as a whole. The euro also shrugged off disappointing confidence figures from the consumer and industrial sector for September.

The Japanese yen is the worst performer as the currency loses its attraction as a safe haven on the back of this morning’s vote and better than expected U.S. economic data.

The Pound has also had a better day, shrugging off continual chatter about the possibility of more QE and boosted by better than expected mortgage approvals data, coming in above 50k, and the highest level since December 2009, while net consumer credit also rose by more than expected to £0.5bn.

Gold prices have stabilised somewhat after dropping below $1,580 briefly this morning. There is a likelihood we could well see further losses in the short term but as long as we stay above technical support around $1,530 we should head higher.

Oil prices have bounced back with today’s firmer tone in equity markets, but continue to trade broadly in the range of the past few weeks.

Copper prices have slid back over concern that the new normal or sub-par growth in more developed markets will hamper demand in the near term.

Yesterday saw Finland become the latest country to ratify the 21st July changes to the bailout fund (EFSF) and in the process throw the spotlight on German ratification today.

The vote is likely to pass, but there is some unease that Angela Merkel could well be politically damaged by it if she has to rely on opposition support to get the numbers required.

There is widespread unease in some German circles that this vote could be a back door to a significant increase to the EFSF and a form of “debt pooling” something Germany is vehemently opposed to, due to fears over its credit rating.
 
At the same time the troika return to Athens to resume their mission to establish whether Greece has done enough to warrant the next €8bn aid disbursement.
 
EU President Barroso also threw his hat into the debate insisting that the EFSF needed to be increased, in spite of German opposition, while he also announced from 2014 the implementation of a financial transactions tax, as if the banks in Europe didn’t have enough problems to deal with, with respect to staying solvent in the wake of a funding crunch and anaemic growth.
 
Speculation that the ECB could well cut rates at next week’s meeting was dealt a blow yesterday when German CPI came in slightly hotter then expected at 2.6%. In any event a rate cut next week seems unlikely given that it is Trichet’s last meeting, however his press conference could well give hints that a cut could come in November.
 
In economic data out today German unemployment for September is set to drop by 8k while the unemployment rate is set to remain unchanged at 7%. The deteriorating outlook for the economy in Europe is expected to be reflected in the release of confidence figures released later which are all expected to continue falling from last months numbers. Industrial, economic, services and consumer confidence are all expected to slide back. Italy’s bond yields look set to continue to come under scrutiny as the country looks to raise up to €9bn in 5 and 10 year bonds later this morning.
 
In the U.S. investors will be looking for a silver lining from the final release of Q2 GDP numbers and the expectation is that it will be revised upwards from 1% to 1.2%. Weekly jobless claims are not expected to improve highlighting the continued jobs problem in the U.S. with expectations of a slight decline to 420k from last weeks 423k. The housing market is also set to continue its declines in August with expectations for a 2.1% fall, following on from July’s 1.3% drop.
 
EURUSD – the single currency did attempt a move above 1.3670 but didn’t have the legs to get above 1.3700 subsequently slipping back. The question remains whether this is the extent of the pullback or whether we see further gains? A sustained break of 1.3670 has the potential to target 1.3780, while it needs a break below 1.3500 to retarget the lows this week below 1.3400. The odds continue to favour a move towards 1.3000, but given the sharpness of the recent down move we could well see a period of consolidation first. It needs a close below 1.3400 to target 1.3050 which is the 61.8% retracement of the same move.
 
GBPUSD – the pound appears to be turning over once more after the highs early this week at 1.5705 in the wake of Friday’s bullish candle. While above the 1.5500 level we could well see the 1.5780 level and even 1.5820, which would be 38.2% retracement of the decline from the August highs at 1.6618 to the September lows at 1.5330. We now need to see the cable break below the 1.5500 level to retarget the lows around 1.5330. This level remains the main obstacle to further declines in the longer term towards 1.5190 which remains the probable longer term outcome, given that the 50 day MA is likely to cross below the 200 day MA in the next few days, and in the process post a “death cross” reversal signal.
 
EURGBP – despite seeing a light spill over to 0.8740 yesterday the broad range trade remains intact between the recent lows around 0.8650. Any sustained move beyond 0.8720 should run into trend line resistance from the 0.9085 highs at 0.8790. The bias remains for further losses while below this resistance. The recent range lows at 0.8535 remains the likely next target while below 0.8720.
 
USDJPY – continue to play the rallies off support from around the 76.00 area. As such the bias remains alive for the prospects of further gains, on a break above 77.20. Any move below the key lows at 76.00/30 could well see further U.S. dollar losses towards 74.50.

European markets initially traded between positive and negative territory this morning, before sliding back in the afternoon as investors await the next developments in the on-going saga that is Europe's sovereign debt crisis. Uncertainty remains the primary sentiment as mixed messages continue to come out of Europe with respect to the next steps in the crisis.

EU Commission President Barosso called for closer fiscal union, and for boosting the EFSF, while Germany continues to rubbish the idea of leveraging the EFSF, on concerns over its credit rating.

The latest ratification vote for the EFSF saw Finland become the latest country to approve measures to increase its powers by 103 votes to 66, while EU President Barroso urged European governments to put nationalism aside and work together towards closer economic union.

The outperformers on the day have been more defensive sectors like telecoms and healthcare, with Vodafone (VOD LN) leading the way.

Smiths Group (SMIN LN) is also doing well after announcing profits in line with last year’s numbers, despite constrained margins on its medical equipment business. BG Group (BG.LN) is the stand out gainer, top of the pile after being upgraded to "conviction buy" by Goldman Sachs.

Biggest faller of the day is hedge fund manager Man Group (EMG LN) after reporting $145m in six month profits, down from $180m a year ago. Funds under management also fell. Cairn Energy (CNE LN) is also under the weather as its Greenland project continues to disappoint while miners are slipping back as copper prices slip back with Chilean copper miner Antofagasta (ANTO LN) leading the way lower.

U.S. markets opened higher after the positive votes from Europe with respect to the EFSF as well as slightly better than expected U.S. durable goods orders for August coming in at -0.1%, above expectations of -0.5%, but still down from July’s 4.1% rise. Markets have started to slip back as Europe slides lower in the afternoon session.

In company news Family Dollar Stores pushed higher after reporting a 5.6% increase in same store sales for the quarter reporting earnings of $0.66c a share, above expectations of $0.63c a share.

Apple announced that it would be holding a special event on October 4th with speculation rife it is set to announce the new iPhone 5. Amazon is also set to be in focus after announcing it is entering the tablet market with a Kindle priced as low as $99.

The Euro has had a largely positive day boosted somewhat by the positive votes on the EFSF as well as slightly hotter than expected inflationary data out of Germany which has diminished expectations of an ECB rate cut at next week’s monthly meeting. Best performers are the Scandinavian currencies with the Norwegian and Swedish krona up on the day, joined at the top of the pile by the Japanese Yen.

The Pound has slipped back after MPC member David Miles suggested he might be persuaded to vote for more QE at the next meeting of the MPC committee. The commodity currencies of the Australian, New Zealand and Canadian dollar are the worst performers.

Copper prices have slipped back a little after yesterday’s rally as markets pause for breath amidst uncertainty with respect to the next move in equity markets.

Gold and Silver prices have also slid back as investors wait for the next development on the crisis that is the European sovereign debt crisis.

Oil prices continue to be weighed down by growth concerns ahead of U.S. inventory data out which came in at an increase of 1.9m barrels above expectations of a rise of 1.1m barrels.

With Greek Prime Minister Papandreou in Berlin yesterday the successful passing of the unpopular property tax in the Greek parliament shouldn’t have been too much of a surprise. If there were any doubt about the vote succeeding he would not have left the country.
 
Yesterday’s recovery in risk seemed to show that markets are starting to become more optimistic about the ability of European leaders to get ahead of the crisis. Given previous experience this could prove to be a mistake given that there is precious little detail or consensus for that matter in what the next steps should be, with stories abounding about some form of leveraged Special Purpose Vehicle, being touted as one solution.
 
Germany remains opposed to any form of EFSF expansion, branding the idea “silly” given that it could jeopardise its and other countries triple “A” credit ratings.
 
As if to underline this uncertainty, reports of a split opening up amongst at least 7 of the 17 members with respect to the new bailout terms, continues to keep investors on edge.

The splits have opened up on the basis that the fiscal backdrop in Athens has deteriorated since July and that as a result some in Germany have insisted that creditors need to take bigger write downs than the 21% agreed on their Greek bond holdings. It also now appears that the release of the next bailout tranche will be delayed by another two weeks, as negotiations go to the wire.
 
Later today the latest German inflation data for September is due out with prices for August set to drop by 0.1%, with the year on year rate set to remain unchanged at 2.4%. Import prices are also expected to drop from 7.5% to 6.7%, with a month on month drop of 0.3%. These drops in prices should make it a lot easier for the ECB to signal possible rate cuts next week at their monthly meeting, though it is doubtful they will go as far as actually doing that. It would be out of character if they did.
 
French final Q2 GDP released this morning came in as expected remaining unchanged at 0% growth, equating to a 1.6% rise year on year, and highlighting the precarious position growth wise of Europe’s second largest economy.
 
In the U.S. the latest durable goods data for August is due out and is expected to show a drop of 0.5%, down substantially from July’s 4.1% rise.
 
EURUSD – as suspected the failure to break below the support just below 1.3400 provoked a pullback towards 1.3670 yesterday. The question now is whether this is the extent of the pullback or whether we see further gains? A break of 1.3670 has the potential to target 1.3780, while it needs a break below 1.3500 to retarget the lows this week below 1.3400. The odds continue to favour a move towards 1.3000, but given the sharpness of the recent down move we could well see a period of consolidation first.
It needs a close below 1.3400 to target 1.3050 which is the 61.8% retracement of the same move.
 
GBPUSD – we got the test towards 1.5640 which the bullish candle on Friday suggested we might get and the move extended to 1.5705, falling just shy of the 1.5780 level. While above the 1.5500 level we could well see the 1.5780 level and even 1.5820, which would be 38.2% retracement of the decline from the August highs at 1.6618 to the September lows at 1.5330. We now need to see the cable break below the 1.5500 level to retarget the lows around 1.5330. This level remains the main obstacle to further declines in the longer term towards 1.5190 which remains the probable longer term outcome, given that the 50 day MA is likely to cross below the 200 day MA in the next few days, and in the process post a “death cross” reversal signal.
 
EURGBP – the cross continues to find range trade between resistance at 0.8720 and the recent lows around 0.8650. Any move beyond 0.8720 should run into trend line resistance from the 0.9085 highs at 0.8790. The bias remains for further losses while below this resistance. The recent range lows at 0.8535 remains the likely next target while below 0.8720.
 
USDJPY – rising U.S. yields have lifted the U.S. dollar away from the key support area around the 76.00 area. As such the bias remains alive for the prospects of further gains, on a break above 77.20. Any move below the key lows at 76.00/30 could well see further US dollar losses towards 74.50.

European markets have continued their gains as investors cautiously dip their toes back into the water as markets move higher on hopes rather than on expectation, though volumes haven’t exactly been great.

European leaders continue to differ about final resolutions but with the troika set to return to Athens and the Greek parliament set to pass the new austerity measures it seems likely that Greece will receive its next €8bn aid tranche, which could well defer the next stages of the crisis for another few weeks. Obstacles still remain especially constitutional ones, with a vote on extensions to the powers of the EFSF in the Bundestag due on Thursday.

Basic resource stocks and financials are amongst the main gainers with Vedanta Resources (VED LN), Antofagasta (ANTO LN) and Xstrata (XTA LN) leading the risers. Silver miner Fresnillo (FRES LN) is also staging a strong recovery as silver prices rebound strongly.

Royal Bank of Scotland (RBS LN) and Barclays (BARC LN) are the big risers in the banking sector as talk gathers pace in Europe of some form of bank recapitalisation plan. In other news the London Stock Exchange (LSE LN) looks to have won the race to take over LCH.Clearnet after securing backing from the clearer's board for a deal.

Underperformers are Primark owner Associated British Foods (ABF LN) and Autonomy (AU. LN).
 
U.S. markets opened significantly higher this morning on the back of more resilient European markets. Financials are likely to lead the moves higher given banks in Europe are helping power gains.

In company news Walgreens smashed expectations of Q4 earnings of $0.55c a share, coming in at $0.87c a share, but that figure also included a one-off item of $0.30c a share, so the figure was closer to $0.57c a share.

U.S. consumer confidence for September did manage to make a minor comeback from August’s surprise plunge from 59 in July to 44, but the recovery was below expectations of 46.5, coming in at 45.4, showing that the U.S. consumer remains weighed down by concerns about the U.S. economy.
 
Biggest gainers today in FX have been the commodity currencies with the New Zealand and Australian dollar pushing higher as copper, gold and silver rebound.

The Euro has an altogether weaker tone despite the apparent optimism in equity markets. Speculation about the timing of any easing in monetary policy by the ECB could well weigh on the upside for the single currency, as it finds upside progress rather laboured even against the pound despite speculation of further asset purchases by the Bank of England.

The successful completion of Italian and Spanish bond auctions does appear to have put a floor under the single currency for now even though Italian yields hit their highest levels since 2008.

The Pound has had another fairly positive day despite retailers having their worst performance since May 2010. The CBI retail sales number for September came in at -15, with declines across all the main sub-sectors. These figures will no doubt add to the calls for further QE at next weeks Bank of England rate meeting as fears grow that the UK economy could well show contraction in Q3.
 
After the falls at the end of last week and early this week metals prices have rebounded strongly with copper, gold and silver prices pulling back from their Monday lows strongly.

After hitting a low of $1,532 yesterday the yellow metal has rebounded back above $1,650, while silver has also rebounded from its $26 lows yesterday to be trading back above $32 this morning.

Copper prices have rebounded back above $3.35 after yesterday’s 14 month lows at $3.05.

Oil prices have also rebounded, not surprisingly on the back of stronger equity markets but remain in the range that has dominated trading over the past few weeks

Economic data continues to act as a by-product to the over arching reach of the sovereign debt crisis in Europe, as optimism that EU leaders might finally be taking steps to tackle the crisis saw equity markets and the single currency pull back some ground.
 
Disappointing German IFO data for September was shrugged off yesterday as markets chose to focus on the change of emphasis from EU leaders with respect to the problems in Europe.
 
Talk out of Europe about the consideration of bank recapitalisations, a 50% Greek default and an increase of leveraging up of the bailout fund (EFSF) has encouraged, but numerous obstacles remain with the German constitutional court being one of the biggest, next to the ECB.
 
Andreas Vosskuhle, head of the constitutional court, said politicians do not have the legal authority to make any agreements that violate or impinge on German national or fiscal sovereignty, and any leveraging up or increasing the EFSF would do that, and any such measures, if being considered, must be put to a referendum of the people. This intervention, coming as it does ahead of a key vote on the EFSF in the Bundestag on Thursday, could well make matters tricky for getting the vote passed.
 
With this in mind uncertainty will undoubtedly remain the predominant sentiment, not helped by mixed messages from ECB officials with Ewald Nowotny suggesting a rate cut couldn’t be ruled out at the next meeting; only for this to be rubbished by his fellow ECB member and colleague Yves Mersch.
 
Spanish and Italian bond short term bond auctions later this morning are also expected to attract scrutiny given the recent rise in yields.
 
In the UK the Pound has managed to pare back some of its recent losses despite concerns that the Bank of England could well be set to embark on a fresh round of asset purchases, as economic data continues to show weakness.
 
Yesterday saw new MPC member Ben Broadbent indicate that he almost considered voting for more QE at the last meeting of the MPC. This puts him much closer to current and only MPC dove and QE advocate Adam Posen who is set to speak later this morning in Berlin, and who will no doubt go onto make his case again.
 
Analysts have been speculating that further QE could well start as soon as next week. This seems unlikely given the current mathematics on the committee, but we could well see additional members move into Posen’s camp without getting the required majority. We wouldn’t know how many though until the published minutes later on in the month.
 
Today’s CBI reported sales for September is expected to show further weakness from August’s -14, declining to -15 as consumers keep their hands in their pockets amidst all the uncertainty in the UK and Europe.
 
In the U.S., markets are not only putting to one side more disappointing housing data from yesterday, but also the possibility of another government shutdown on Friday, as once again partisan politics and rows over disaster aid, threatens to derail a bill that would keep the U.S. government funded until November 18th, as the fiscal year comes to an end at the end of September.
 
U.S. consumer confidence for September is expected to make a minor comeback from August’s surprise plunge from 59 in July to 44, with expectations for a recovery to 46.5.
 
EURUSD – despite a marginal new low of 1.3365 the single currency failed to close below   the 50% Fibonacci retracement level at 1.3405 of the entire rally off the 1.1880 lows in 2010 to the highs this year at 1.4940.  It needs a close below 1.3400 to target 1.3050 which is the 61.8% retracement of the same move. The continued failure to break this support area could well see a pullback in the medium term towards 1.3670.
 
GBPUSD – the break above 1.5500 yesterday and the bullish candle on Friday keeps the likelihood of a test towards 1.5640 as a distinct possibility. A move beyond 1.5640 has the potential to revisit 1.5780. The support at 1.5330 remains the main obstacle to further declines in the longer term towards 1.5190 in the near term which remains the probable longer term outcome, given that the 50 day MA is likely to cross below the 200 day MA in the next few days, and in the process post a “death cross” reversal signal.
 
EURGBP – the cross continues to find the air a little thin anywhere near the 0.8800 level, with trend line resistance from the 0.9085 highs acting as resistance. The bias remains for further losses while below this resistance and the recent range highs at 0.8790. The single currency’s break below support at 0.8700 saw a test below 0.8670 to hit 0.8650 before rebounding. The recent range lows at 0.8535 remains the likely next target while below 0.8720.
 
USDJPY – in what is something akin to watching paint dry the inability to rally and weak U.S. bond yields keeps the pressure on the U.S. dollar, however the base continues to remain intact despite the yen making 10 year highs against the euro. As such the bias remains alive for the prospects of further gains, on a break above 77.20. Any move below the key lows at 76.20/30 could well see further U.S. dollar losses towards 74.50.

On another volatile day for European markets, financials have been among some of the main gainers as bargain hunters move in to scoop up stocks that are starting to look a little oversold.

After opening lower the main European benchmarks have seen downside tempered by talk out of Europe about the consideration of bank recapitalisations, a 50% Greek default and an increase of leveraging up of the bailout fund (EFSF).

Uncertainty remains the predominant sentiment, however as European markets trade in predominantly positive territory, however the resource heavy FTSE100 is finding it difficult to sustain much in the way of gains due to weakness in mining stocks.

The biggest fallers have been basic resource stocks after Friday's move by CME to raise gold, silver and copper margins with Fresnillo (FRES LN), Vedanta Resources (VED LN), Randgold Resources (RRS LN) and Kazakhmys (KAZ LN) leading the sector lower.

Lower oil prices have also weighed on oil stocks with Royal Dutch Shell (RDSA LN) leading the sector lower, though BP's (BP. LN) falls were tempered by the payment of a special dividend by its Russian joint venture TNK-BP.

The main gainers have been insurers and banks with Aviva (AV. LN), Legal and General (LGEN LN), Barclays (BARC LN) and Royal Bank of Scotland (RBS LN) all bouncing strongly from 52 week lows.

U.S. markets followed Europe’s markets higher on the vague talk that EU leaders are considering a number of different options to deal with the current crisis. With little in the way of tangible detail markets are likely to continue to remain choppy while uncertainty remains. Stocks in the news include pharmaceuticals giant Pfizer after its debt rating was downgraded by Fitch, though it revised its rating to a stable outlook.

Apple is also expected to be in focus after cutting its orders for the iPad for the first time, by as much as 25% in the fourth quarter.Oil company Chevron is expected to also be in focus after announcing a $29bn investment in the Wheatstone liquefied natural gas project in Australia.

In economic news new home sales for August continued to decline, falling 2.3%, much more than expected and down from July’s 0.3% decline. The Dallas Fed manufacturing activity index for September continues to point to a slowdown in the US economy declining 14.4, well below expectations of -8 and worse than August’s 11.4 decline

The Euro has had a fairly choppy day making fresh seven month lows against the U.S. dollar and 10 year lows against the yen before rebounding strongly on vague talk of a plan to recapitalise European banks, as well as slightly better than expected IFO data out of Germany. Expectations for September dropped below 100 to 98, above expectations of 97.3, but still on a downward path.

Talk that ECB officials are considering a rate cut at their next meeting also bizarrely boosted the Euro, after ECB member Nowotny said a cut couldn’t be ruled out, however this view rubbished by his fellow ECB member and colleague Yves Mersch.

The Pound has had a better day after the declines of the past two days, pushing higher against the single currency despite MPC member Ben Broadbent indicating that he could well be leaning in the direction of further easing.

Gold prices continued their falls this morning in the wake of Friday’s CME margin hike, falling close to its 200 day MA before rebounding strongly, while Silver has also continued its precipitous falls from Friday after falling through its 200 day MA, also pressured by Friday’s margin hike on silver.

Copper prices have also suffered on the back of a hike in margins late on Friday, hitting 26 month lows at $3.0715 before also rebounding strongly. Volatility is expected to remain high ahead of further PMI releases later this week out of China.

Oil prices have also had a predominantly softer tone falling to their lowest levels since early August at $101, as concerns remain about future demand in the face of a slowdown in European economies.

In spite of talk at the weekend that EU leaders are looking at expanding the size of the current bail-out fund (EFSF) to €3trn markets are likely to remain cautious, even if it appears that European leaders do appear to be finally grasping the fact that the current situation cannot go on forever.
 
The plan being talked about in addition to the €3trn is said to also include a recapitalisation of Europe’s banks and a plan for an orderly Greek default. The problem with this is that it will take time and will face the same problems that the 21st July treaty faces, namely being ratified in the 17 member parliaments of all euro area countries, unless leaders can find a way to pass it through undemocratically, which would be hugely controversial.
 
A variation on this plan would be a leveraging of the EFSF which is also under discussion, but this is again likely to face the same obstacles to the options above, as well as mean the risk of ratings downgrades for stronger members of the euro zone.
 
Markets are likely to remain sceptical, while EU officials continue to utter contradictory statements with ECB member and Bank of France governor Christian Noyer stating that there was no need for a recapitalisation of French banks.
 
German chancellor Angela Merkel also added to the uncertainty with mixed messages on German TV last night as she continued to walk a fine line with the German voters, saying that a euro area insolvency cannot be ruled out, and at the same time saying that Greece cannot be allowed to default.
 
The troika of the ECB/EU and IMF officials are set return to Athens this week for the latest round of talks with Greek officials with respect to the next tranche of its €8bn loan, with Greek finance minister Venizelos making all the right noises saying Greece will do whatever it takes to meet its budget goals.
 
The IMF has also acknowledged that its own bailout fund is not sufficiently capitalised in the event of a contagion to larger states and could well need boosting further increasing the pressure on the finances of its largest contributors, when finances are already at breaking point.
 
In the UK the pound is likely to be in focus as external MPC member Ben Broadbent is due to speak at Reuters auditorium at Canary Wharf on the UK economy and the possible direction of monetary policy. Of particular interest will be his views on the recent minutes of September meeting of the monetary policy committee and the likelihood of the timing of any further stimulus measures given the recent dovishness of the recent minutes.
 
German IFO data is expected to be scrutinised for signs of improvement in light of the recent slowdown in economic data, however expectations aren’t high with economic expectations expected to slip into contraction territory at 97.4 for September, down from August’s 100.1. A number above 100 signals positive sentiment, while a number below 100 signals negative sentiment.

The business climate index is expected to fall as well but remain above 100, in expansion territory, falling to 106.5 from 108.70 in August.
 
In the U.S. new home sales for August are due to continue to paint a bleak picture for the US housing market, with expectations that they will fall 1%, adding to July’s 0.7% decline.

The Dallas Fed manufacturing activity index is on the other hand expected to improve slightly for September improving from -11.4 in August to -8.
 
EURUSD – Friday’s failure to take out the previous lows at 1.3390 keeps the onus open for some sort of rebound, with the failure to break below the 50% Fibonacci retracement level at 1.3405 of the entire rally off the 1.1880 lows in 2010 to the highs this year at 1.4940. A sustained break of this level still targets 1.3050 which is the 61.8% retracement of the same move. The bounce off this support area could well see a pullback in the medium term towards 1.3670, but the close below 1.3500 the previous lows this month undoubtedly keeps the outlook negative for further declines.
 
GBPUSD – support at 1.5330 continues to hold in the short term and as such we could well see a rally back beyond 1.5485 the previous 50% retracement of the 1.4230/1.6745 up move. A move towards 1.5190 in the near term remains the probable longer term outcome; however cable shorts need to be aware that a move beyond 1.5500 could well see a move back towards 1.5640.
 
EURGBP – the cross continues to find the air a little thin anywhere near the 0.8800 level, with trend line resistance from the 0.9085 highs acting as resistance. The bias remains for further losses while below this resistance and the recent range highs at 0.8790. The single currency’s break below support at 0.8700 now opens up 0.8670 initially, and then the recent range lows at 0.8535.
 
USDJPY – once again the inability to rally and weak US bond yields keeps the pressure on the US dollar, however the base is just about managing to stay intact for now. As such the bias remains alive for the prospects of further gains, on a break above 77.20. Any move below the key lows at 76.20/30 could well see further U.S. dollar losses towards 74.50.