After the events of the last 24 hours, where Spanish police fired rubber bullets and used batons on austerity protestors, Spain’s politicians need to draw the sting from further political unrest today while at the same time satisfying the EU that any new budget agreed for 2013 is credible. As things stand Spain looks set to miss its revised target for its 2012 budget of 6.3%, and thus next year’s budget of 4.5% is likely to be just as difficult, given that this year’s deficit to August is already above that now. The trick is they have to do this against a backdrop of rising bank loan losses, rising unemployment, a contracting economy and capital flight from Spanish banks. With 10 year bond yields back above 6% the temptation is there to say, “Good luck with that”. Mr Rajoy is no doubt playing for time with respect to asking for an inevitable bailout but yesterday’s ill-advised comments to journalist’s about bond yields were pretty much an open invitation to markets to force his hand. Even allowing for today’s budget we have the Wyman stress test banking report out on Friday and that could well be interesting reading, notwithstanding a possible Moody’s downgrade by the end of this week as well, and the disaffection of Catalonia. Today’s latest German unemployment numbers are likely to show an increase of 10k in September and raise concerns that Europe’s problems are starting to effect the so far resilient German economy. The rate is expected to stay unchanged at 6.8%. The rise in Spanish yields yesterday was the last thing Italy wanted with a 10 year bond auction due this morning. Italian yields also edged higher yesterday on the unrest in Spain. Even so the yields are expected to be lower than the previous 5.82%, while investors will be hoping for a better bid to cover than the previous 1.4. In the UK the final revision of Q2 GDP is due to be released today with expectations of no change to the previous -0.5%. there has been some speculation on the margins that we may get a slight upgrade to -0.4%, and though while that might be seen as a positive surprise it doesn’t disguise the fact that the UK economy continues to struggle, though Q3 is expected to be much improved. In a day full of economic data the health of the US economy is also of interest with the final revision of US Q2 GDP expected to come in unchanged at 1.7%, and while we shouldn’t see too much in the way of surprises here the latest August durable goods orders are likely to be a good barometer of US consumer habits. It is important to look beyond the headline figure, which in July was distorted by aircraft orders, showing a gain of 4.2%. When that was stripped out the figure was negative. Today’s number is expected to show a decline of 5%, which shows that despite rising consumer confidence there remains a reluctance to spend significant amounts of money on big ticket items. Weekly jobless claims are expected to slip back from 382k to 375k. EURUSD – the single currency has so far managed to hold above the 200 day MA at 1.2830, rebounding from that level yesterday. It needs a push below 1.2830 to retarget the 1.2650 level with key trend line support from the 1.2045 lows now at 1.2635. Pullbacks have so far stalled at trend line resistance from the 1.3175 highs earlier this month, now at 1.2925 as the euro struggles to rally The bigger resistance level remains from the 1.4940 highs at 1.3210 Only a move above 1.3240, targets 1.3495, the 50% retracement of the entire down move from 1.4940 to 1.2045. GBPUSD – cable continues to trade in the range between support at 1.6140/50 and the larger resistance at 1.6300/10. The risk remains for a move back towards 1.6050 despite the pounds resilience; with a move below trend line support at 1.6040 from the August lows at 1.5490, targeting 1.5920. It needs a move above resistance at 1.6305 to target a move towards 1.6590, last years August high. Only a break below 1.5860 has the potential to target 28th August lows at 1.5755. The long term trend line support lies at 1.5630 from the 1.5240 lows. EURGBP – the 0.7940 level appears to be finding some support after another two failed attempts yesterday. The momentum still argues for a test towards the 07880 level and trend line support from the 0.7755 lows at 0.7905. To restore upward momentum we need to see a bounce back through the 0.8050 area to retarget the highs two weeks ago. USDJPY – the inability to rally back through 78.00 keeps the pressure on for a move towards the lows earlier this month at 77.25. To stabilise in any meaningful way we need to take out trend line resistance at 79.15 from the 20 April highs at 81.80, as well as the 200 day MA at 79.30. The 200 day MA at 79.31 remains the main obstacle to a return towards the highs last month at 79.70.