Friday’s surprise miss on the US payrolls report certainly wasn’t what markets were expecting and the sell-off in equity markets certainly appeared to reflect that. Despite this the US economy still remains one of the few economies where the economic data is still posting numbers well above Europe and the UK, and once all the hue and cry has subsided the markets could well reflect that, starting with a higher European open this morning. It does though beg the question as to whether US markets are too high relative to valuations as well as future earnings estimates, and prospective US GDP targets for 2013. We should get a better indication of company optimism on this point as US earnings season starts this week with Alcoa the first to report later this evening. One thing is certain the very low number of 88k is likely to push back talk of the tapering of stimulus measures from the Fed into the later part of this year at the earliest, though it is also premature to read too much into one month’s figures. This weeks FOMC minutes aren’t likely to add too much colour to this particular picture, given that the meeting in question came well before Friday’s and last week’s overall disappointing employment data. At his press conference in March, Bernanke did state that it would take sustained improvement of a range of indicators, before the Fed would even consider adjusting the pace of asset purchases. Friday’s payrolls numbers will reinforce that message, and though the numbers weren’t awful they were still the lowest in nine months. There was no comfort from a fall in the unemployment rate to 7.6% given that the labour participation rate dropped as well. The slowdown in US jobs growth is also not great news for Europe’s beleaguered economies as it struggles with record unemployment and contracting GDP, making the current policy mix in Europe a toxic combination for incumbent governments. The French government looks set to revise its growth forecasts for 2013 down from 0.8% to 0.1% this week, while the Spanish government looks set to undertake a similar downward revision. Given that this year’s budgets were set against much higher projected numbers, unemployment looks set to rise further as economic activity continues to shrink, making the outlook for growth that much more grim. The problems in Cyprus continue to rumble on as capital controls continue beyond their original time estimate, while estimates of the final depositor haircut bill continue to vary, giving depositors elsewhere in Europe a harsh reminder that the Cyprus template could be used elsewhere, despite EU leaders claims that Cyprus is a unique case, after comments from Olli Rehn last week, that such a plan should be considered for future bank failures. The political deadlock in Italy looks set to roll into the summer with new elections the likely outcome. This can only happen after the election of a new President, which is not likely to happen much mid May, though markets continue to remain remarkably relaxed, hence the sharp fall in bond yields on Friday. Having only got over the hump of the Cyprus crisis, EU leaders now have another problem in the form of Portugal, and the rejection of about €1.3bn of EU mandated austerity measures as illegal and unconstitutional by the Portuguese constitutional court. Given that only a month ago the Portuguese government was given two extra years to 2015 to bring its budget deficit below 3% of GDP, the Portuguese government is now faced with the possibility of having to go back again for another troika extension, as well as having to create a new budget for 2013, with even deeper spending cuts than had been the case in the original budget plan. As for the UK the pound has enjoyed a brief respite from recent selling pressure with Friday’s move by Standard and Poor’s to reaffirm the UK’s triple A rating, providing a welcome boost to the beleaguered currency. The latest services sector report suggested that the UK might avoid a triple dip recession, a positive boost to the downbeat tone so far this year. Markets will also be looking for an improvement in the February trade balance numbers tomorrow after the decline in exports to non-EU countries seen in the January numbers. The key question will be has the weaker pound helped boost this area of the UK economy as Bank of England policymakers believe it might. EURUSD – last week’s break back above the 200 day MA shifts sentiment on the euro slightly more positively and we could be gearing up for a rebound as long as we stay above 1.2875. The twin lows at 1.2750 have seen a rebound towards 1.3040, trend line resistance from the 28 Feb highs. A break through 1.3040 targets the 100 day MA, and behind that resistance at 1.3170. GBPUSD – the bullish engulfing week seen a few weeks ago keeps the outlook positive and the push beyond the 1.5230 level now targets a potential move towards the 1.5420 level and 38.2% retracement of the 1.6370/1.4835 down move. Only a move below last weeks low at 1.5035 negates this view and targets 1.4920. EURGBP – currently capped by the 200 week MA at 0.8520 after last weeks test of the 0.8420 level. A move below 0.8410 targets 0.8280 which is 50% retracement of the 0.7755/0.8815 up move. Back above 0.8520 retargets the March gap at 0.8580. USDJPY – we remain on course for the 99.80 level which is 50% retracement of the 124.15/75.30 down move. Trying to pick a dip will be the challenge here after last week’s surge higher. We could well see a fall all the way back towards 94.40 which were the February highs and acted as support for the beginning of March. A break below 94.00 opens up a move towards the 92.80.