In a clear broadside aimed at the UK Treasury prior to next week’s budget, ratings agency Fitch last night joined Moody’s in putting the UK’s credit rating on a negative outlook, though the triple “A” rating was affirmed.

Any thoughts in some parts that the Chancellor might be tempted to embark on a bit of a budget giveaway next week as a result of coming in under his borrowing forecasts for 2011 are very likely to be put to one side after last night’s warning. The agency warned that the UK has very limited space to absorb further adverse economic shocks.

The pound appears to have shrugged off the warning given that it was broadly expected given Moody’s actions last month, and the fact that ratings agencies have pretty much lost the capacity to surprise.

Markets tend to be broadly ahead of the curve when it comes to credit risk at the moment, given the problems in Europe.

The situation in Europe continues to rumble away in the background with Spain overtaking Italy as the main concern as its 10 year bond yields once again start to edge higher and back above 5.10%.
Later today Spain is set to offer €3.5bn of bonds against a backdrop of a shrinking economy and pressure from the EU to make further budget cuts to get their 2012 debt to GDP ratio down to 5.3%.

The second Greece bailout was formally ratified yesterday while EU Commission President Barroso reportedly stated that there would be no further austerity in Greece for now, which rather flies in the face of the leaked troika report that suggests that further measures may be needed as early as May.
As this could be just after the scheduled Greek elections it assumes that the elections come up with a working government which is able to implement any new measures, which given current polls in Greece is by no means certain.

The good news out of the US with respect to economic data is expected to continue today with the release of the latest weekly jobless claims as well as some key manufacturing data from the east coast of the US in the form of the Philadelphia Fed and the Empire Manufacturing indexes for March.

Weekly jobless claims were a bit of a disappointment last week rising to 362k, however they are expected to slip back once more to around the 355k level while the Philadelphia Fed and Empire manufacturing indexes are both expected to continue their recent expansion with the Philly Fed expected to increase from 10 to 11.2, while Empire manufacturing is expected to slip back slightly from 19.53 to 17.4.

EURUSD – yesterday’s close below 1.3080 and the 55 day MA shifts the focus towards a move back to the February lows at 1.2975, and then on to 1.2800. To delay this move lower the single currency needs to close back above yesterday’s highs at 1.3090
The larger resistance level remains at the 100 day MA at 1.3250, as well as the highs last week at 1.3290.

GBPUSD – the cable continues to hold up above this week’s low point above the 1.5610 level which is the 50% retracement of the entire up move from the 1.5240 lows to the 1.5990 highs.
The 1.5750 level has continued to cap thus far resisting moves higher on two occasions and needs to get above here to push on towards the 1.5830/40 area which is what it was unable to do late last week.
A break below 1.5610 argues for further weakness towards 1.5530, the 61.8% level of the same move as well as 1.5420.
The key barrier on the upside remains at the 200 day MA at 1.5870 and this remains a key resistance level for another crack at the 1.6000 area.

EURGBP – the break below the trend line from the 0.8220 January lows at 0.8315 prompted a brief dip below 0.8300 but no sustained follow through. Nevertheless it keeps the focus on for move towards the February lows at 0.8270.
The 0.8340 level should act as interim resistance followed by this week’s larger resistance at the 0.8425 level which precipitated this week’s aggressive sell-off. The dominant theme remains for a move to the downside and a sustained move through the 0.8300 level has the potential to retarget the 0.8220 lows.

USDJPY – another 10 month high at 83.80 yesterday keeps the momentum positive for a test towards 85.15 which is the 50% level of the down move from the 2010 highs at 95 to 75.30.
Any pullbacks could well find support at 82.85 which is the previous Fib level, while below that the 80.60 now becomes a key support.
The continued surge in US 10 year bond yields, from 2% to 2.25% in three days, keeps the outlook supportive for further gains.
It appears the Ichimoku cloud breakout is playing out pretty much in line with previous breakouts and continues to augur well for further gains towards 90 in the next 12 months.