The key takeaways from yesterday’s meeting between Merkel and Sarkozy, was greater convergence of government, harmonisation of tax rates and a financial transaction tax, all profoundly disappointing, notwithstanding the difficulties of implementing such changes.

The tax harmonisation plan will not go down well with other EU countries, particularly Ireland where it has been a red line issue.

There was no talk about boosting the EFSF and no talk about euro bonds, all rather disappointing, but not altogether surprising, given the political obstacles against them.

The biggest worry remains the lack of economic growth in Europe after yesterday’s Q2 GDP numbers showed that the economic slow down is now spreading to the core economies without exception. German Q2 GDP eked out growth of 0.1% and yesterday’s failure to outline any clear measures to stimulate growth in the face of this Europe wide problem has got markets worried.

The main concern is about where future growth will come from, if Germany as the main heartbeat and cash generator of Europe catches a cold.

Back in the UK yesterday’s CPI figures nudged higher on an annualised basis and could well push even higher, after the price rises from the power companies kick in this month.

Today’s Bank of England minutes could give indications as to whether any more MPC members join Adam Posen in calling for more QE in light of recent disappointing data. It is more likely that the status quo will remain given the inherent risks that further QE would bring in sterling devaluation and imported inflation.

UK Unemployment on the ILO measure is expected to remain constant at 7.7% while the change in jobless claims is expected to rise by 20k for July.

Back in Europe Eurozone July CPI is expected to slip back on a monthly basis by 0.6%, but remain constant at 2.5% on an annualised basis.

The likelihood of further rate rises from the European Central Bank on this basis should be diminishing by the day on that basis, given that CPI was negative in both Italy and France last week, however one cannot be too careful where the ECB is concerned given their almost one eyed fixation on inflation. Nevertheless the time could well be fast approaching where the next move in rates could well be down, especially if growth shows no signs of re-establishing itself in Europe’s core economies.

US producer prices for July are expected to stay constant at 7% year on year and rise 0.1% month on month, up from June’s -0.4%.

EURUSD – nothing much has changed from this week’s moves with the resistance from the June highs at 1.4700 at 1.4475 holding for now. The market continues to trade within the broader 1.4000/1.4500 range, with the major resistance around the July highs at 1.4575/80. While these levels act as resistance it is hard to look for any evidence that the euro can re-test the highs of this year. The major support remains just above the 200 week MA at 1.4030 which remains a tough nut to crack.

There is also minor trend line support from the 1.3835 lows currently around the 1.4150 level.

GBPUSD – the pound continues to beat expectations on the back of significant dollar weakness. Having managed to hold above the 1.6250/60 area the pound has pushed on beyond the 1.6380 area and has hit trend line resistance at 1.6450 from the 1.6750 highs in April. Only a break above 1.6500 could tip the odds back for a move towards the highs of 1.6745.

Back below 1.6220 retargets 1.6170 while the 200 day MA remains the key support at 1.6085/95, and a sustained break below could well target further losses.

EURGBP – the 0.8830 area and the 55 day MA are currently capping the upside here. It needs a daily close above this level to target higher levels, and a move towards 0.8900.

The key support remains around the 200 day MA around 0.8660/70 and while below last weeks’ highs the potential remains for a move lower.

A close below the 200 day MA has the potential to retarget the May lows at 0.8610 and ultimately the trend line support at 0.8545 from the 2010 lows at 0.8065.

USDJPY – no change in view here as US bond yields continue to remain weak.

The risk remains for further losses but the market needs to take out the base that appears to be building up around the major lows around the 76.25/30 area.

Any move below these key lows could well see further US dollar losses towards 74.50.

Ten year US treasury yields continue to remain extremely stodgy and until these yields rally above 2.5% it is hard to see how the US dollar can rally at the moment.

It really needs to rally beyond the 77.80 area to kick on towards the 55 day MA and bigger resistance level at 79.50/60. Once through the 79.50/60 area it then needs to kick on towards the trend line resistance at the 80.85 level.