So another week begins and the same old stories continue to vie for attention with Greece struggling to convince the rest of Europe it can meet its obligations, after having a decision on the next tranche of its bailout delayed until October.

The lack of any headway at the Ecofin weekend meeting in Poland, along with a swift dismissal of advice from US treasury secretary Timothy Geithner, merely serves to highlight the simmering tensions among European politicians as they try to balance the competing demands of political unpopularity at home against the need to reassure financial markets.

The decision by Greek PM Papandreou to delay his trip to the US this week highlights the concerns surrounding Greece and further austerity measures demanded by the troika, who return to Athens today and are due to meet Greek cabinet ministers to assess whether the new measures agreed will be enough to warrant the next tranche of bailout money.

German finance minister Wolfgang Schauble has warned that no further money will be released until Greece fulfils its pledges to meet its 2011 and 2012 fiscal targets.

Meanwhile in Germany, Angela Merkel’s government continues to lurch from one political problem to the next. This weekend’s election defeat in Berlin, which more or less wiped out her FDP coalition partners, just adds to the uncertainty with respect to the German government’s ability to reassure markets, at the same time as reassuring its voters it’s not signing blank cheques for Greece, or anyone else.

It also throws into doubt her ability to rally support for the EFSF changes agreed at the July 21st EU summit when the German parliament comes to vote on September 29th.

In the UK the pound will be in focus on news that public finances could well be 25% worse than thought after an FT report suggested that spare capacity in the UK economy could be lower than expected, which could mean that austerity measures could well have to be extended for much longer than initially thought.

The Bank of England also released its latest quarterly bulletin which looked at a broad overview of the UK economy and has also raised the prospect of further QE, after it suggested that the previous stimulus measures helped alleviate the impact of the previous crisis by about 2% of GDP.

In the report Bank of England economists provide evidence that the previous easing measures were effective in boosting growth, however in a warning to the doves it points out that the effects of QE may be different if they were to be implemented a second time around, due to the fact that economic circumstances “are different from those that prevailed in 2009, so it cannot be assumed that the effects will be the same."

In the US President Obama is expected to outline plans for a deficit reduction plan of around $1.5trn with plans for a new millionaire’s tax or “Buffet” tax on US citizens earning more than $1m a year. This tax is likely to face opposition from the Republicans as the battle lines look to get drawn ahead of a next year’s presidential election.

EURUSD – last weeks push beyond the 1.3830/40 area to 1.3930 didn’t last very long and was quickly reversed and as such the downtrend identified by the break below the 200 day MA at 1.4035 remains intact.
The low last week around 1.3500 remains the key obstacle to further losses in the short term, while the progressively higher lows have seen trend line support at 1.3710, from the 1.3500 low this week, give way in Asia this morning.
The next areas of support after 1.3500 still remain between 1.3360 and 1.3405, with 1.3405 being 50% retracement of the entire rally off the 1.1880 lows in 2010 to the highs this year at 1.4940. 1.3050 is the 61.8% retracement of the same move.

GBPUSD – last Friday’s US dollar weakness prompted a sterling rebound but it still feels really forced, with the pound unable to get anywhere near 1.5900, even after breaking through the 1.5820/30 area briefly.
It still feels like we could well get further losses towards the 1.5485 level which is the 50% retracement of the 1.4230/1.6745 up move.
For this to happen we would need to see the pound close beyond 1.5820/30 area to spring back towards the 1.5920 area.
The pound continues to remain oversold and we continue to look for a rebound at some point, which could well be triggered by a close beyond 1.5830.

EURGBP – the failure to break above the 55 day MA at 0.8800 last week keeps the prospect of a move lower alive, but we need to see a move back below the 0.8700 level and the 200 day MA as the top of the recent range keeps a lid on the euro.
The bias still remains for a test back towards the lows at 0.8530, and then on towards 0.8450, but it could well take a little longer to unfold.

USDJPY –despite the US dollar continuing to remain soggy at higher levels the fact that it continues to remain above the key 76.20/30 support area, keeps the prospects of further gains intact.
As long as we can hold above the key support levels around the 76.20/30 area a bounce remains the preferred option on a break through the 55 day MA, just above the 77.90 level.
Continued weakness in US 10 year treasury yields is constraining the upside in the yen here. Any move below the key lows at 76.20/30 could well see further US dollar losses towards 74.50.