Even without the deterioration of economic conditions in Europe investors have been concerned for a while now that the broader global economy has also been struggling with Asian markets now starting to exhibit worrying signs of a broader slowdown. Yesterday’s downbeat assessment by the OECD of economic conditions, not only in Europe and the US, but also in China and India is likely to see equity markets continue to struggle, despite last week’s attempts by central banks to stimulate growth by additional policy easing measures. Italy and Spain remain Europe’s most pressing concerns with bond yields once again pushing up to unsustainable levels despite yesterday’s announcement that Spain would be given a one year extension to bring its deficit down to acceptable levels. For all the supposed good work at the EU summit the subsequent fall back to the default position of “conditionality” in return for aid by Germany, Finland and Holland, puts the crisis back to each countries effective pre-summit position. This point was reinforced by German Finance minister Shaeuble when he stated that there could only be direct ESM bank recapitalisation after EU bank supervision was in place. Given that ECB President Mario Draghi suggested that this may take until well into next year to implement, it would appear that immediate solutions are as far away as ever. Growth concerns are likely to be reinforced this morning by the latest May industrial production data from Italy and France, with Italy expected to see a decline of 0.3% and France a decline of 0.9%. In any case EU finance ministers did manage to agree a blueprint for a deal to release the first €30bn of Spanish bank aid via FROB, the existing Spanish banking bailout fund, by the end of this month. In return each bank that receives funds will have to agree to specific reforms. The final memorandum will not be officially agreed until July 20, but it will include further stress tests for 14 of Spain’s largest financial banks followed by a requirement that Madrid creates a "bad bank" of the banks’ distressed assets. The German constitutional court is also expected to start its deliberations on the legality of the new bailout fund the ESM, under the rules of the German constitution, with a possibility that a negative ruling could blow a giant hole in the EU's bailout strategy. Last week’s decision by the Bank of England to embark on another round of QE with the injection of another £50bn of asset purchases was probably one of the worst kept secrets of the last month given that the Bank of England governor virtually pre-announced at the Mansion House dinner in June. The publication of the latest industrial and manufacturing production data for May is likely to support the actions of the Bank at last Thursday’s meeting, however it is debateable how effective the measures are likely to be given that November’s QE was unable to stop a Q1 contraction in economic activity and is also unlikely to prevent Q2 from going the same way. Both measures are expected to show small declines of -0.1% on a month on month basis, equating to a 2% decline year on year, better than Italy and France but still poor. On the plus side the May trade balance numbers are expected to show a minor improvement from April’s deficit of £5,200 to a deficit of £4,700. EURUSD – last week’s move below the June lows at 1.2290 now targets a move towards the 2010 post first Greek bailout lows at 1.1880, given the lack of follow-through on the downside so far the risk of a pullback towards the 1.2450 triangle breakout area remains a possibility. A daily close back inside the triangle retargets the highs last week at 1.2680, while behind that the 55 day MA at 1.2745 and 50% retracement level of the 1.3285/1.2290 down move at 1.2790. GBPUSD – the failure of the pound to follow through below 1.5460 just about keeps the recent range intact and makes the likelihood of a squeeze back higher towards the 1.5620 level a distinct possibility. A move below 1.5460 is likely to indicate the first signs of a return to the June low at 1.5270. Below 1.5250 signals a risk of a return to the July 2010 lows at 1.4950. The 200 day MA at 1.5755 remains the key resistance on the topside. Only a close beyond 1.5755 the 200 day MA could target 1.5910, which would be the 61.8% retracement of the 1.6305/1.5270 down move. EURGBP – last week’s close below the 0.7950 area to fresh 3 year lows increases the likelihood of further declines towards 0.7845 and the November 2008 lows. The next long term target lies just below that though at 0.7784 which is 61.8% retracement of the entire up move from 0.6535 and 2007 lows to the 2008 highs at 0.9805. Intraday resistance lies at the 0.8000 level, while the main resistance remains around the 55 day MA at 0.8060 and trend line resistance from the highs this year at 0.8505 at 0.8065. USDJPY – the trend line support at 79.50/60 from the 4th June lows at 78.00 continues to support the US dollar here. The main resistance remains at the top of the cloud at 80.45 and the support above the 200 day MA at 78.95. To reiterate we need a weekly close above 80.50 to reassure about further upside.