At last month’s ECB rate meeting the bank lowered both its growth and inflation forecasts for 2013, while policymakers also discussed the possibility of reducing rates further. During the ensuing press conference we learned that the decision to leave rates unchanged turned out not to be unanimous, which saw the euro slide back. Despite this it would be a surprise if the ECB were to move on rates this month, even allowing for the continued increases seen in unemployment numbers across Europe and rising concerns about the German economy in Q4. Yesterday we heard EU President Herman Van Rompuy declare that the euro area economy is likely to resume growth this year, and that the euro area was no longer in “existential threat mode”. While the latter comment may have some truth in it, it is hard to share his optimism about the former, even allowing for the slight bottoming out seen in some of last week’s European PMI data, particularly on the services side. The German economy, in particular is showing increasing signs of showing distress as it lags behind in feeling the effects of Europe’s recession. As such while monetary policy is expected to remain unchanged it will once again be the press conference from President Draghi that will determine the next move up or down in the single currency, and how much closer or otherwise we are to a rate cut. Any decision as last month is unlikely to be unanimous but nonetheless markets will be looking for clues as to timing in the Q&A session after the initial statement. In some respects Draghi is likely to be somewhat frustrated by the reluctance of the Spanish government to submit to a bailout given it would probably increase the likelihood of a cut. The fact that the Spanish are holding out is likely to keep the ECB in hold mode in an attempt to keep the pressure on, despite the recent falls in peripheral bond yields. Forty five minutes before the ECB meeting the Bank of England is set to meet, and while the health of the UK economy continues to worry policymakers it remains highly unlikely that the MPC will alter policy this month, despite the likelihood that the economy probably contracted in Q4. Inflation risks remain all too real and with CPI remaining near 3% and the inflation report due next week, any policy changes would be more likely to come after that. The committee are also likely to want to have more time to assess how the “funding for lending” scheme is helping improve overall liquidity trickle down into the economy. There is certainly evidence that it is proving much more effective than the majority of the £375bn worth of QE has done so far in improving overall lending conditions. EURUSD – currently range trading with resistance at 1.3170 and support in the low 1.3000’s. The current pullback needs to get back above 1.3170 to retarget the 1.3300 area, but at the moment shows no sign of wanting to do so The long term support line from the 1.2045 lows now at 1.2980, remains the key level on the downside while a move below 1.2950 targets the 100 day MA at 1.2935 and below that the 200 day MA at 1.2780. GBPUSD – also range trading between resistance near the 1.6180 level and support just above 1.6000. To retarget the resistance at 1.6310 the cable needs to get above 1.6180. A break below the 1.6000 level is needed to target major trend line support now at 1.5960 from the 1.5270 lows, the 200 day MA at 1.5900, as well as 1.5660. EURGBP – the current rebound has so far been unable to push beyond the 0.8170 level, a break of which has the potential to retarget the December highs at 0.8225. The long term trend line support at 0.8075 from the 0.7755 lows remains a key level, a break of which could well signal further losses towards the November lows at 0.7960. USDJPY – the current rebound could see the US dollar pull back to the previous tweezer top 88.40 high, having got back through the 87.60 area, after finding support below the 87.00 area. A move through the 88.40 area opens up a potential test of the 90.00 area. The 87.50 area should once again act as a pivot.