In a classic case of selective focus the markets chose to ignore disappointing manufacturing PMI figures for June, across Europe and Asia last Friday, instead choosing to focus on an unexpectedly positive ISM number out of the US, and in the process accelerating the strong rebound in risk appetite seen in the aftermath of the Greek austerity votes last week.

At the weekend European finance ministers agreed to release the next €12bn of bailout money in response to the passing of the new austerity budget. There was no agreement on loan rollovers or the format any new bailout would take with respect to private sector involvement. It is likely that this could well be delayed until September, given European leaders predilection for delay. In any case even if a plan is agreed by there is no guarantee that the ratings agencies would not treat such an event as a form of default, a fact pointed out to the markets and EU leaders this morning by Standard and Poors. The agency stated that such an event by Greece could well be a “selective default”.

In the UK the pound is continuing to have a rather lean time of things after manufacturing PMI data, which has until recently been one of the more buoyant indicators, disappointed on Friday coming in below expectations.

If today’s construction PMI for June shows similar weakness then rather than talking about rate rises, the talk may well continue to shift towards further QE with arch dove Adam Posen’s arguments starting to gain further traction with some members of the MPC. One thing is pretty much certain; this week the Bank of England meeting will keep rates as they are, at 0.5%.

Expectations are for a figure of 53.5 slightly down from May’s 54.

In Europe, on the other hand rates look set to go up this week irrespective of this morning’s PPI figures for May which are expected to slip back -0.1% in May and fall back to 6.3% from April’s 6.7%.

With the US off on their 4th July holiday, markets could well find the afternoon session a rather quiet one.


EURUSD – the resistance area around 1.4550 continues to act as a cap for the time being, despite trading above it in Asia this morning; however the odds are slowly shifting towards a break towards and a return to the 1.4700 area, and the highs this year at 1.4940.

The 55 day MA at 1.4405 remains a key support area and for the downside view to remain intact we need to see the single currency break back below here to target the 1.4320/30 area and retest the key trend line support at 1.4130/40 from the May lows at 1.3970.


GBPUSD – the pound continues to suffer relative to the US dollar with rallies becoming more and more anaemic. However while it is unable to break below the support area at 1.5980 then the risk of a break beyond the 1.6120/30 resistance zone increases.

A break of 1.6120/30 could well see further gains towards 1.6200; while below the 1.5980 area retargets the lows of earlier this week around 1.5910 as well as the 1.5880 area which is the 61.8% retracement of the 1.5340/1.6745 up move.


EURGBP – the single currency continues to remain resilient against the beleaguered pound pushing to its highest levels since May 2010, touching 0.9085 before retreating.

On Friday we saw a bearish engulfing candle on the 4 hour charts which could limit the upside in the near term, but the market seems intent on testing the May 2010 highs around 0.9150. The long upper shadows on the daily candles are evidence of nervousness of being long euro’s at these currently elevated levels.

It now looks as if it will take some move to undermine the upward momentum of the past few days but a move below 0.9000 could well be the first evidence of a correction lower. The four hourly charts and daily charts remain overbought; however it would need a sustained break back below the 0.8940 area to shift the focus back towards 0.8850.


USDJPY – last weeks surge in US 10 year bond yields should keep a floor under the dollar here with a close above the 200 day MA at 3.12% and a bullish weekly engulfing candle. As far as the recent range is concerned it’s as you were with the 55 day MA at 81.30 continuing to cap. A break above is needed to signal the next leg higher towards the May highs at 82.00.

For now the 80.00 level remains fairly solid support while a slide below 79.80 could well see a re-test of the May lows at 79.50.