Yesterday’s late cancellation of today’s EU finance ministers meeting appears symptomatic of the brinkmanship being played out between EU officials and Greek politicians as they play cat and mouse with each other, and the markets over the ratification of the latest Greek bailout.

A conference call is now going to be held instead as EU leaders await confirmation letters from Greek politicians pledging that they will stick to the austerity plan, irrespective of election results due to be held in April.

While markets await for the respective parties to come to some form of accommodation a reminder of the problems facing European economies will be starkly illustrated later today with the publication of flash Q4 GDP data for Germany, France, Italy and the Euro zone as a whole.

It isn’t likely to make comforting reading at a time when European taxpayers will be expected to put their hands in their pockets to either bail out Greece, or a large number of European banks in the event of a Greek default.

Expectations for Q4 GDP are all expected to be negative raising concerns about a double dip recession in Europe with German GDP expected to contract 0.3%, France -0.2%, Italy -0.6% and Eurozone -0.4%, as the chill winds of the European debt crisis freeze Europe’s economies.

Yesterday’s downgrades by Moody’s of Italy and Spain as well as the adjustment of France’s outlook highlight these concerns starkly even if bond yields continue to fall as a result of the ECB’s LTRO liquidity injections.

The UK also got a warning shot across its bows from Moody’s, with a negative outlook, though it did receive some good news as inflation fell at its fastest rate for quite some time as last years VAT rate hike dropped out of the calculations. December CPI showed a decline of 0.5%, as annual inflation dropped to 3.6%, still well above the 2% target rate of the Bank of England. While Bank Governor Mervyn King may allow himself a wry smile his satisfaction should be tempered by the fact that he’s being saying inflation will fall for two years now, which just goes to show if you say something often enough you’ll be right eventually.

Today’s latest unemployment data aren’t expected to offer much comfort though with expectations that jobless claims for January are expected to rise 3k, up from December’s 1.2k rise. The ILO measure is expected to stay at 8.4%, while average earnings are expected to remain at 1.9%.

The Bank of England inflation report is also expected to shed some light on the MPC’s decision to inject another £50bn into the economy last week, despite the recent improvement in economic data. It would be surprising given last week’s action if the Bank didn’t downgrade its inflation forecasts as well as its growth forecasts in order to justify last week’s move. If this does happen we can expect the pound to come under pressure, given how the governor likes to talk the pound lower.

Later in the day we will also get to see the latest minutes of the first (FOMC) Fed meeting of 2012 and try and determine the reasons behind Fed Chairman Bernanke’s somewhat downbeat assessment of the US economy, in recent public pronouncements, in spite of the improving economic and jobs data seen in recent weeks and months.

Before that we have the latest US Empire manufacturing for February which is expected to improve to 14.8, while industrial production for January is expected to rise to 0.6% from 0.4% in December.

EURUSD – yesterday’s sharp dive below the 1.3160 trend line saw the single currency push down to 1.3080 before rebounding.
The range of 1.30/1.33 continues to be the way of it for now, however the key level remains the twin lows around 1.3020, a break of which then retargets the 1.2870/80 level.
The key level on the upside still remains at the 1.3330 area which is the 100 day MA, while behind that there is also the 1.3435 area which is the 50% retracement area of the same move.

GBPUSD – the 55 day MA at 1.5600 could well be the key support area over the coming days after the bout of sterling weakness seen in the past day or so. Below 1.5600 retargets 1.5500 which is 61.8% retracement of the 1.5270/1.5930 up move.
The pound needs to get above trend line resistance at 1.5760 from the recent highs at 1.5930 to retarget a move towards 1.5880.
The resistance at the 200 day MA at 1.5938 remains the level preventing a move above 1.6000.

EURGBP – the 0.8400 level continues to cap the upside in this cross, however the key level remains at the recent range highs so far this year at the 0.8420/30 area. Any break could well see 0.8500 quite quickly.
The 0.8340 area needs to break on the downside to signal a return towards the January lows at 0.8220. It would require a break below the September 2010 lows at 0.8200/05, to target the 2010 lows at 0.8065.

USDJPY – yesterday’s close above the recent range highs at 78.30 and the 200 day MA at 78.10, shifts the emphasis towards a test of the 80.00 level after yesterdays surprise easing by the BoJ. The main concern remains a weakness in 10 year US treasury yields which slipped back yesterday. We could see a slide back towards 78.00 but as long as we continue to stay above the 200 day MA then further gains seem likely.
The key support remains above the 76.50 level and expect to see further range trading in the absence of a break above the 200 day MA, with interim support also at 77.30.