The North/South divide in the Euro zone could not have been more apparent yesterday with the release of the latest unemployment figures, with German unemployment falling to post unification lows of 6.7%, while unemployment in Holland and Austria is under 5%.

In sharp contrast the unemployment rate in Italy rose to 8.9% with Greece and Spain showing double digit rises, with youth unemployment particularly high.

Given Germany\'s place in Europe and the role they have in implementing budget discipline amongst other EU members it is a problem that probably isn\'t as high up their list of priorities, and may not be given the same sense of urgency as it probably could be.

This could prove costly for Eurozone cohesion and today’s final manufacturing PMI numbers for January are likely to reinforce these divisions.

French, German and Eurozone PMI’s are expected to stay unchanged from the previous readings of 48.5, 50.9 and 48.7 respectively, while Italian PMI is expected to improve slightly from 44.3 to 45.3. These weak numbers highlight the importance of getting measures in place to bolster the various economies in Europe.

The fiscal compact agreed earlier this week has helped Spanish and Italian bond yields fall back in the past couple of days giving welcome respite to both countries who have significant amounts of debt to be rolled over this month.

Concerns about the Greece debt swap deal and a new bailout aren’t likely to be too far away, with pressure increasing on the ECB with respect to its own bond holdings. Pressure is also being increased on Athens to implement new measures and reforms to close a funding gap since the original bailout deal was agreed in October.

Agreement on this is by no means certain with ECB member Nowotny suggesting that whether Greece stays in the euro zone depended on its ability to push through a series of new measures.

With an election in Greece due in April it probably wouldn’t take too much to see the wheels come off once more, and the air come out of the market rally seen so far this year.

Last weeks UK Q4 GDP numbers while disappointing weren’t entirely unexpected, given how poor some of the recent data had been in Q4 and today markets will get the first indications as to how the economy is doing in Q1 with the release of manufacturing PMI data for January with expectations that the sector could eke out an expansion to 50.1, from December’s 49.7.

It’s also an important day for US economic data today as well especially in light of last week’s rather downbeat FOMC press conference and disappointing GDP numbers on Friday, and yesterday’s miss in consumer confidence and Chicago purchasing managers data.

The latest ADP employment report for January is due and all eyes will be on whether the record gain from last month of 325k is adjusted down and whether the January number can sustain the momentum with an expectation of a gain of 185k.

The release of the latest January ISM manufacturing data will also be of interest in light of the downbeat Fed assessment with expectations of an increase to 54.5 from 53.9.

EURUSD – yesterday’s move towards the 1.3050 support area has so far contained the downside in the single currency. To reopen a downside move we still need to see a break below 1.3050/60 level to retarget last Wednesday’s lows at 1.2940/50 level which prompted the sharp rebound at the end of last week.
The 1.3245/50 38.2% retracement of the down move from the October highs at 1.4250 to the recent lows at 1.2610, remains the key resistance on the topside. A break though could well target a deeper move towards 1.3450; but for now the bearish reversal on the candle charts keeps the focus for a move lower.
The key support level remains around the 1.2850/60 area and only below this level reopens a move towards the key 1.2600 level.

GBPUSD – the pound had a slightly better day than the euro yesterday as it broke briefly above the 1.5780 level towards 1.5800 before slipping back. As long as it holds above 1.5720, we could well see 1.5800 give way and target a move towards 1.5920 and slightly above that the 200 day MA at 1.5968, but with negative divergence forming on the four hour charts that seems unlikely.
Back below 1.5720 retargets this weeks low at 1.5640, while below that the 1.5530 area and last weeks low could see some buying interest as well.

EURGBP – the failure to overcome the resistance at the 0.8420 cap saw the euro slide back sharply below the trend line support at 0.8340 from the January lows at 0.8220. The subsequent break below 0.8310 brings the focus back on those lows and the September 2010 lows at 0.8200/05.
These lows remain the key obstacle to further declines towards the 2010 lows at 0.8065.

USDJPY - this week’s move below the 76.50 level opens up the risk of a move back towards the all time lows at 75.30. The US dollar needs to get back above the 76.50 level to stabilise in the short term and alleviate the downside pressure.
The 200 day MA at 78.30 remains the key barrier to a US dollar turnaround after last week’s failure at that level.