Recent growth downgrades for Europe by bodies like the ECB and OECD have highlighted the difficulties faced by European governments when dealing with countries with rising debts and shrinking growth prospects. There is a particular concern more recently surrounding Germany’s growth prospects after last week’s actions by the Bundesbank in slashing their forecasts for 2013 from 1.6% to 0.4%. Though markets reacted positively to this week’s very good December ZEW economic sentiment survey these sentiment surveys have a tendency to be rather flaky and volatile as economic conditions change. Even though we have had some positive news flow in the last couple of days with respect to Greece and initial steps on a more integrated European banking union at this week’s EU summit there has been precious little discussion given over towards steps to promote economic growth and this is expected to be reinforced with the release of the latest manufacturing and services PMI numbers for December for Germany, France and the Eurozone. French manufacturing and services PMI numbers are expected to show a small improvement from 44.5 and 45.8 to 44.9 and 46 respectively, still worryingly weak, and pointing to a Q4 contraction. German figures are expected to be slightly better with manufacturing expected to improve from 46.8 to 47.3, while services is expected to show a 50 reading, pointing to stagnation. The broader Eurozone measures are also expected to show moderate improvement to 46.6 for manufacturing and 47 for services. In Spain the decline in house prices is expected to continue on a quarterly basis heaping further pressure on bad loans in the Spanish banking sector, despite the setting up of the bad bank earlier this month. Q2 house prices showed a decline of 3.3%, translating to an annual decline of 14.4%. This isn’t expected to have improved over the latest quarter, Q3. Late yesterday evening S&P joined Fitch and Moody’s on putting UK on a negative outlook for its triple “A” rating, suggesting that we will see a ratings cut sooner rather than later, and probably by Q2 of next year. The pound slipped initially, particularly against the euro, however the agencies aren’t really telling us anything we don’t already know and the reaction is likely to be fairly muted as far as the markets are concerned. Putting the tortuous negotiations about the fiscal cliff to one side for a moment in the US the latest industrial production figures for November will be of particular interest with respect to the impact Hurricane Sandy had on activity last month. Expectations are for a rise of 0.2%, a slight recovery from October’s -0.4%. EURUSD – the larger resistance at 1.3175 remains the key level, and obstacle to a further move towards 1.3400. It needs a move back below 1.3020 to retarget the key support at the 1.2880/90 level which is the 50% retracement of the up move from 1.2660 to last week’s high at 1.3125. A move below the 1.2880 level opens up a move back towards the trend line support from the 1.2050 low, which now sits at 1.2825, and the 200 day MA at 1.2790. GBPUSD – the 1.6180 level and November highs remains the key resistance blocking a move towards 1.6300. Trend line support from the 1.5830 lows comes in at 1.6060, while the key support remains at 1.5980. Only a break through here targets major trend line support at 1.5875 from the 1.5270 lows, the 200 day MA at 1.5870 as well as 1.5660. EURGBP – 0.8130 has held for now but the wider resistance lies at 0.8165, the November highs, a break of which targets 0.8300. The 0.8080 level needs to hold for this move to unfold otherwise we’re probably heading back towards 0.8030 and trend line support from the July lows at 0.7755 which remains the key level for the uptrend to continue. USDJPY – we’re almost at the 84.00 level and the highs this year at 84.16. A break above here targets the 85.55 2011 highs. The previous resistance at 82.70/80 should now act as support, but if we do drop below this then there remains solid support at 81.70. If we break below 81.60 then the potential is there for a move towards 80.50, and even 79.90.