European markets are set to follow the outlook for the dollar. The dollar is getting stronger and European currencies are weakening and that is probably taking European markets higher again.

The Australian dollar has been dragged down by the New Zealand dollar. Both currencies may well go through several months of under-performance.

We've seen markets get ahead of themselves in bonds and in currencies as well. There are signs that markets have now gotten too optimistic about not only the size of the U.S. recovery, but the speed; our medium-term forecast is still very much of euro strength and dollar weakness.

This will lead to rising unemployment levels in Germany.

The euro has clearly accelerated some people's focus on cost-saving synergies.

It's very quiet and lackluster. I was looking for the markets to come up slightly because of a modest rally in the Deutsche mark-dollar. But even that has started to come down again.