Today’s deliberations in the German constitutional court on the legality of the bailouts in Europe has the potential to be fairly high stakes stuff given that a vote against would throw Europe into further chaos.

The likely outcome probably won’t be too much better in that legislators could well attach a number of firebreaks or safeguards to any new bailouts by way of giving the German parliament stringent vetoing rights with respect to the release of any new bailout funds.

Central bank intervention has been a common theme in the past few months, in Japan, the US and Europe, whether it be straightforward intervention, or fiscal stimulus.
Yesterday the Swiss National Bank joined the party unilaterally getting in on the act by setting a peg for the franc at €1.20 and undertaking to throw the kitchen sink at the problem with a new policy backed by an unlimited amount of francs.

It remains to be seen whether it will be successful in the long term, but as an interim measure it may well have bought some temporary respite. It does remain an extremely risky policy given the problems in Europe right now and the prospects of further deterioration in the European outlook.

In the UK concerns remain about a continued slowdown in growth ahead of tomorrow’s Bank of England rate setting meeting.

Today’s release of August Industrial and Manufacturing Production data for July is expected to increase calls for further measures to stimulate the economy with expectations for the monthly figures to remain broadly flat on a month to month basis, while on a year on year basis industrial production is expected to contract further from -0.3% to -0.4%, while manufacturing is expected to slip from 2.1% to 1.9%.

Unless the figures are significantly poor, it remains unlikely that there will be any move to alter monetary policy at tomorrow\'s Bank of England rate setting meeting, even though the matter, will in all likelihood, get vigorous discussion.

In Germany similar scrutiny will be brought to bear on its own industrial production figures and as the engine room of Europe any miss here will reverberate more strongly through Europe than elsewhere, with expectations of an increase in the monthly July number from -1.1% in June to 0.5%. The year on year number is expected to remain at 6.7%.

Last night’s decision by the Bank of Japan to keep rates unchanged at 0.10% was no surprise; however nervousness remains about further intervention in light of the Swiss actions yesterday. The amount of stimulus was left unchanged as the bank looked to assess the effect of the measures taken at the last meeting.

Yesterdays’ move by the Reserve Bank of Australia in holding interest rates at their current levels appears to have been justified by this mornings Q2 GDP numbers which came in at much better than expected, with a 1.2% an increase from Q1’s adjusted 0.9% decline, suggesting that the Australian economy remains in much better shape than recent data had suggested.

EURUSD – yesterday’s close below the 200 day MA at 1.4016 shifts the focus towards a weaker euro in the short term, however what is required more than anything is a close below the 200 week MA at 1.4025 and until this occurs we could well be vulnerable to the types of sharp snapbacks seen yesterday morning.
Another key support area is trend line support from the 1.1880 lows in 2010 which comes on around 1.3975, and this has held the downside for now, but a break then targets 1.3835 and the July lows.
In the interim pullbacks should find resistance below the 100 day MA at 1.4360 which had until last week acted as support for the previous 2 weeks.

GBPUSD – yesterday’s break below 1.5990 which was trend line support from the 2010 lows at 1.4230, now opens up the possibility of further losses towards the July lows at 1.5780.
The daily close below the 200 day MA at 1.6110/20 earlier this week should now act as a cap for any pullbacks, though we could also an overspill towards the 55 day MA at 1.6230 given how oversold the market is at the moment.

EURGBP – no change in view here with the major support remaining at 0.8680/90 which is where the 200 day MA currently sits. This remains the key level on a daily close for a retest of May lows at 0.8610 and ultimately the trend line support at 0.8565 from the 2010 lows at 0.8065.
Despite yesterday’s sharp spike above 0.8825 the market failed to close above the 55 day MA, and this keeps the pressure on the downside.

USDJPY – yesterday’s action by the SNB has prompted some yen selling on fears that the Bank of Japan may well follow suit, despite the plunge in US 10 year yields to 65 year lows.
The failure to take out 77.60 keeps the pressure on the downside for now, while a close above will have shifted sentiment towards a test of the 55 day MA at 78.20, and bigger resistance level at 79.50/60.
Any move below the key lows at 76.20/30 could well see further US dollar losses towards 74.50.