The rising price of oil continues to worry policymakers with IMF chief Christine Lagarde expressing concern at the weekend that despite the temporary abeyance of the euro zone debt crisis, and continued recovery in equity markets, risks to the global recovery remain, and that the rising price of oil is one of those key risks.

The IMF also reiterated its concerns about the latest Greek bailout saying that it remained “accident prone”, probably one of the reasons the organisation reduced its contribution to the latest bailout, as concerns continue to rise that for the first time ever it could run the risk of not getting all of its money back, if as seems likely another restructuring were to take place. They went on to say that if Greece left the euro it would be extremely costly in global terms.

While the recent Greek bailout may have brought about a temporary easing of pressure in Europe concerns remain, with today seeing the Greece CDS auction in the wake of the credit event declared by ISDA after the recent debt restructuring.

The recent fall in bond yields across Europe appears to have bought some time for Spain and Italy to implement structural reforms, but a key test this week will be attempts by Italian PM Monti to revise labour laws as he meets unions and employers in an attempt to promote growth in the stagnant Italian economy. The IMF continues to urge European leaders to boost the bailout fund in order to protect Italy and Spain, something which Germany remains opposed to for now.

The markets will also be paying particular attention to events in the UK this week in the wake of recent ratings warnings by Fitch and Moody’s and the pace of fiscal consolidation.

The UK budget as is always the case is always more about the politics than the economics, however with growth stalling and inflation still relatively high investors will be keen to see how the Chancellor navigates the balancing act of reducing taxes to promote growth, while at the same time sending the message to markets that he remains committed to cutting the deficit.

EURUSD – the inability to push lower on Friday as suspected has translated into a larger pullback and once again we could well be heading back to the 100 day MA and the highs of the last two weeks at 1.3290. A significant break above 1.3290 retargets this year’s highs at 1.3490.
Last week’s failure to close below 1.3070 was a disappointment and could herald a delay to the next move lower. On the downside the key support remains the February lows at 1.2975 on the way to 1.2800.

GBPUSD – the resilience in the pound continues to keep the bears on their toes after another retest of the 200 day MA now at 1.5860. A sustained break could well see another run towards the 1.6000 level.
On the downside last week’s low at 1.5610 and 50% retracement of the entire up move from the 1.5240 lows to the 1.5990 highs, remains a key support.
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.

EURGBP – the single currency continues to find bids around the 0.8290 area but is also finding selling interest around the 0.8350 level. The focus remains for a move towards the February lows at 0.8270, on the way to a retest of the January lows at 0.8220.
The 0.8340/50 level should continue to act as interim resistance followed by last week’s larger resistance at the 0.8425 level which precipitated the aggressive sell-off we saw at the beginning of last week.

USDJPY – last week’s move to the 84.15/20 should be the first leg to a longer term up move in the US dollar here, after this months Ichimoku weekly cloud break out.
The test towards 85.15 remains the next target which is the 50% level of the down move from the 2010 highs at 95 to the all time lows at 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.