The uncertainty in Cyprus took another turn yesterday as not unexpectedly the bailout package didn't get parliamentary approval on its first vote, with not a single MP voting yes. Given the current simmering anti EU mood amongst the populace the MP's decision shouldn't really be seen as too much of a surprise. The Cypriot MP's obviously didn't get the EU memo that states that you must vote yes, and if you don't, you keep voting until you do. The saga has now moved onto the next stage of what is turning into a high stakes game of Russian roulette, quite literally, as the Cypriot finance minister Sarris flies off to Moscow in the hope of some better terms, perhaps in exchange for gas exploration rights and future revenues given the fairly sizeable amount of Russian money (about €20bn) frozen in Cyprus's banks. All the while Cyprus banks remain closed, probably until next week, while contingency plans for capital controls are being prepared for when they re-open to prevent a haemorrhaging of cash in the event a deal is done. As things stand a deal with Russia may be the most likely option for Cyprus, unless the EU blinks and softens the terms of the deal, which could be a tough sell for the German parliament in particular in an election year. In the absence of a deal a number of Cyprus MP's have said they will leave the euro. It seems that the desire of the Bank of England for a lower pound in an attempt to boost UK exports has had the entirely predictable effect of exerting upward pressure on inflation in the February numbers released yesterday. While CPI numbers came in as expected at 2.8% an altogether bigger concern was the sharp rise in factory gate input and output prices which came in sharply higher with input prices jumping by 3.2%, well above expectations of 1.5%. This rise is likely to feed down the supply chain and manifest itself in the CPI numbers further down the line in the coming months. This is likely to limit the room for manoeuvre for Bank of England policymakers for further QE. Last week's intervention by Governor Mervyn King about the recent fall in the pound does appear to have stabilised matters, however if he really does believe that things are getting better as he appeared to indicate in his comments last week then today's latest MPC minutes should show that he has reversed his February call for an extra £25bn in QE. If he hasn't done so then I think it is safe to assume that last week's comments were prompted by a concern about the recent fall in the pound and an attempt to avoid a sterling rout. Markets will be paying particular attention to the makeup of the voting with respect to further asset purchases and whether anyone either reversed their calls for more QE, or whether anyone else has joined Messrs King, Fisher or Miles in calling for more QE. It has become increasingly apparent in recent weeks from recent commentary that there is a clear divide emerging amongst MPC members about the effectiveness of further QE as well as some of the more radical ideas being touted with respect to future monetary policy. We may get some clarity on the Bank of England's future remit in the Chancellor's budget statement this afternoon. The latest average earnings numbers are also likely to reinforce the pressure on the hard pressed consumer as wages continue to lag way behind prices with expectations of a rise 1.5%., a slight increase from 1.4% the previous month. Today's ILO unemployment numbers for January are expected to come in unchanged at 7.8%, while the claimant count number for February is expected to show a fall of 5.2k, slightly down from January's 12.5k decline. With respect to expectations about the Chancellor's budget statement later today it has to be said the bar is set very low, given the state of the public finances and the squeezed UK consumer. There is also the inescapable fact that with Cyprus bubbling away in the background today's budget announcement, in the absence of any real radical reforms, is likely to be more about political theatre than anything else. Anyone looking for anything radical is likely to be disappointed as the Chancellor plays his annual version of moving the deckchairs around in his attempts to try and engineer some semblance of growth in a flat lining economy within the confines of the straitjacket of coalition that he finds himself in. Markets will be looking for business friendly measures to boost growth, like tax reductions to corporation tax given that larger UK businesses are probably the only ones with any surplus cash, while tax breaks for other investment are also likely to be well received. Also on the tape today in the US we have the latest minutes from the FOMC meeting where in stark contrast to the Bank of England there is an ongoing debate about the likelihood of some tapering of easing measures as economic data in the US continues to show improvement. While the doves on the committee like Bernanke and Yellen continue to hold sway for the moment the concerns of Fed governors Bullard and George are increasingly starting to be listened to by market participants for clues as markets look to front run a possible lifting off in the monthly $85bn a month QE process. EURUSD - the euro continues to drift lower falling below the 200 day MA at 1.2875 and 50% retracement of the 1.2045/1.3710 up move. This brings with it the risk of a move towards 1.2680. 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. GBPUSD - the pound is currently struggling to move above the highs this month between 1.5200 and 1.5220. 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 - while the US dollar has dropped back it has remained fairly resilient continuing to hold above the 94.20 level, after last week's failure to get through the 96.70 level. 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.