After the successful ratification of the German EFSF vote yesterday attention now turns to Austria, who is also expected to ratify the 21st July agreement later today. The biggest obstacle is Slovakia where they are due to vote on 25th October and where the government is struggling to muster support, against a fierce backdrop of opposition from certain elements in the opposition parties.

While markets breathed a shallow sigh of relief that Europe’s biggest economy is now on board for this particular change, everyone knows the problem has once again been pushed out into the future again.

There is also the added problem that voters within the various European countries are now waking up to the fact that this could well be a problem without an end, and without any indication what the final bill is likely to be.

This will make progress a lot trickier in the future as German voters start to see themselves as Europe’s cash machine.

If the troika return from Athens and Greece gets its next bailout tranche, attention will then turn to the next G20 summit in Cannes at the beginning of November, where more radical measures may well have to be considered, otherwise we could well be on course for the same charade to be repeated in December.

For now the small matter of economic data returns to the fore with a raft of data out from across Europe this morning beginning with German retail sales for August which are set to show a decline of 0.5% for the month.

Inflation data is also due out from the Eurozone and Italy with price pressures set to remain fairly benign in these regions, with Eurozone CPI expected to come in at 2.5% for September, unchanged from August. Italian CPI is set to rise slightly to 2.6% but not by enough to stop speculation of a possible ECB rate cut at next week’s meeting.

As explained in previous notes this is unlikely to happen but the ground for a cut could well be prepared in the press conference after the rate meeting.

Italy has bigger problems in any case after yesterday’s bond auction saw Italy pay record high bond yields at a series of Italian auctions which continue to point to stresses in Europe, and the banking system as a whole.

August unemployment data for Europe is also due out later with expectations that the unemployment rate will remain at 10%, despite much better then expected German unemployment figures yesterday.

In the UK the pound had a better day yesterday after better then expected mortgage approvals and consumer credit lending data, while today’s Gfk consumer confidence survey for September showed that the consumer remains extremely pessimistic about the economic outlook, even though there was a slight improvement to -30, improving slightly from August’s -31 reading.

In the US the Fed’s preferred inflation measure, (PCE) the rate at which it assesses its rate policy, is expected to show a further rise in core inflation for August, rising from 1.6% to 1.7%, making it much more difficult to make the case for further full blown QE in the near future.

The final figure for University of Michigan confidence for September is expected to remain unchanged at 57.8.

EURUSD – the single currency continues to find the air a little thin above 1.3670 and needs to see a break above 1.3700 to signal a test of 1.3780.
On the other side of that it needs a break below 1.3500 to retarget the lows this week below 1.3400.
The odds continue to favour a move towards 1.3000, but given the sharpness of the recent down move we could well see a period of consolidation first.
It needs a close below 1.3400 to target 1.3050 which is the 61.8% retracement of the same move.

GBPUSD – once again the pound found progress above 1.5700 difficult to sustain pushing back down towards the 1.5500 level before rebounding.
It would appear that a range of 1.5500/1.5700 starting to build up with a break of 1.5500 reopening the lows at 1.5330.
A sustained break above 1.5710 could well see the 1.5780 level and even 1.5820, which would be 38.2% retracement of the decline from the August highs at 1.6618 to the September lows at 1.5330.
The recent lows remains the main obstacle to further declines in the longer term towards 1.5190 which remains the probable longer term outcome, given that the 50 day MA has now crossed below the 200 day MA, and in the process posted a “death cross” reversal signal.

EURGBP – struggled once again yesterday to sustain any moves above the 0.8720 level keeping the broad range trade intact between the recent lows around 0.8650. Any sustained move beyond 0.8720 should run into trend line resistance from the 0.9085 highs now at 0.8785. The bias remains for further losses while below this resistance.
The recent range lows at 0.8535 remains the likely next target while below 0.8720.

USDJPY – continue to play the rallies off support from around the 76.00 area. As such the bias remains alive for the prospects of further gains, on a break above 77.20.
Any move below the key lows at 76.00/30 could well see further US dollar losses towards 74.50.