The situation in Cyprus continues to remain as fluid as ever but for now markets are reacting fairly calmly to the shifting sands of rhetoric and speculation coming from the various meetings and talks. There has been some chatter surrounding the formation of a Plan B which has been doing the rounds with speculation about some tweaking of the deposit levy, as well as possible Russian involvement in a package as well. As with all speculation and hear say it is always better to act on the confirmation as opposed to idle chatter. While yesterday’s UK budget had some good and some not so good, in reality it does little to change the overall trajectory of the UK economy and the problems facing it. Whether what the Chancellor has done is enough to preserve the UK’s triple “A” rating with Fitch and Standard and Poor’s, remains to be seen after both said they would review the rating in light of yesterday’s measures. Given the downgrades to the forecasts on borrowing and growth one would suspect that we could well see at least one of them, if not both, follow Moody’s lead in the coming days or weeks. The Chancellor also announced the intention to bring about changes to the Bank of England’s mandate, with some semblance of forward guidance, which could well be introduced by the time of the September meeting and announced in the August inflation report. Today’s latest February borrowing numbers are set to confirm that the Chancellor is likely to miss his borrowing target for this fiscal year, a fact that was acknowledged in yesterday’s budget forecasts, while the growth target was also downgraded from 1.2% to 0.6%. After the surplus posted in January the public sector borrowing for February is set to show a deficit of £8.2bn. It isn’t all bad news though where it is expected to see a bounce back in retail sales numbers for February after the disappointing January numbers. A rise of 0.6% is expected and would cancel out the decline seen in January. It would also see the annualised number return to positive territory. While things are certainly difficult in the UK, they are even worse in Europe, with the notable exception of Germany where the economy continues to show signs of improvement. With all the noise surrounding Cyprus and its situation it is easy to forget that Europe’s economy is sliding quite sharply even if Germany continues to hold its own. The latest services and manufacturing March PMI data for Germany are expected to show marginal improvements to 55 and 50.5 respectively. That really is where the good news ends, however as the equivalent French data continues to disappoint, even though some improvement is expected. Both manufacturing and services PMI data are expected to show a small improvement on both measures to 44.2 and 44 respectively. The broader Eurozone measures are also expected to improve as well with both the manufacturing and services indicators both ticking up to 48.2. In the US Fed Chairman Bernanke reaffirmed the Fed’s commitment to continues its stimulus program until there was a sustained improvement in economic data. He did say that the Fed was open to decreasing or increasing the amount of stimulus if circumstances warranted. Today’s economic data includes weekly jobless claims which are expected edge up from 332k to 340k, while the March Philadelphia Fed Index is expected to improve from last months disappointing -12.5 to -2.5. EURUSD – the lack of follow through below the 200 day MA this week suggests a slowing of downward momentum and brings with it the risk of a pullback towards 1.3030. The resistance on the topside remains at 1.3130, where we have the 100 day MA, and behind that we have resistance at 1.3170. A close below the 200 day MA at 1.2875 and 50% retracement of the 1.2045/1.3710 up move brings the risk of a move towards 1.2680. GBPUSD – a choppy day for the pound yesterday, with the 1.5200 area continuing to cap the potential for further gains. A bullish engulfing week suggests the potential for further gains towards 1.5400 on a break of 1.5220. If we drop back below the 1.5000 level then we could fall back towards 1.4920. EURGBP – the 200 week MA at 0.8520 remains the key support level on the downside and we’re just about hanging on to it but we could well be heading towards the 0.8480 area We need to push beyond the 0.8580 area to retarget the 0.8680 level. USDJPY – the US dollar continues to remain resilient pulling back towards the highs last week 96.70. As long as we stay above the 94.00 level then we should get a move towards the 99.80 level which is 50% retracement of the 124.15/75.30 down move. A break below 94.00 opens up a move towards the 92.80.