Yesterday’s decision by a majority of the Dutch parliament to come to an agreement on a budget for 2013 that meets EU budget conditions it would appear had removed a near term pressure point in the Eurozone debt crisis, even though the political uncertainty of the setting of a date for the election still needs to be agreed upon. This relief proved to be short-lived, due to events later in the evening, elsewhere with respect to Europe, and another sovereign downgrade.

It was always going to be too good to last and so it was proved as after weeks of silence from the ratings agencies Standard & Poors broke cover and downgraded Spain’s credit rating two notches to BBB+ with a negative outlook, citing significant risk to economic growth and budgetary performance with the likelihood that the Spanish government will need to provide further support to the banking sector.

While not entirely unexpected this move by S&P is sure to underpin Spanish 10 year bond yields once more which had already started to edge back above the 5.8% level yesterday. The problems facing Spain are expected to be highlighted further later this morning with the latest unemployment data expected to show an increase to 23.8%.from 22.85%.

The timing of the downgrade is not great for Italy either, given that they are looking to get away about €6.25bn of 5 and 10 year BTP’s this morning, and their bond yields had begun to edge lower in the past three days.

It wasn’t too much of a surprise to see the Bank of Japan expand its asset purchase scheme by 10trn yen to 40trn yen this morning; however the decision to reduce its credit lending program by 5trn yen could well negate some of the effect of the increase in the asset purchase scheme. The yen is broadly unchanged after some disappointing industrial production data while inflation remains well short of the 1% target, suggesting further easing in the coming months will be quite likely.

In the UK the pound appears to have shrugged off the disappointment of this weeks Q1 GDP numbers with markets preferring to focus on the more positive data seen throughout the first quarter, hitting two year highs against a basket of currencies. This weeks improvement in Nationwide consumer confidence also suggests that things may not be as bad as the ONS numbers suggest however Gfk consumer confidence for April has muddied the waters in this respect somewhat by not following in the footsteps of the Nationwide numbers earlier this week. The Gfk numbers have actually got worse dropping from -30 to -31 suggesting a rather confused picture for the UK economy.

After the events of the FOMC meeting earlier this week and the rising levels in weekly jobless claims yesterday which provoked some disappointment, attention now turns to the US economy and the level of Q1 GDP growth there. Expectations are for a slight reduction from the Q4 figure of 3% to 2.5%, though if it comes in above that markets are likely to be fairly happy, and the speculation about further QE is likely to recede once more, at least until the next bit of bad data. Irrespective of the number any further QE if it were to happen, wouldn’t happen before June, given that is when the next Fed meeting is due to take place.

EURUSD – the range trading within the triangular consolidation continues as the single currency edges beyond the 55 day MA towards the trend line resistance at 1.3300 from the March highs.
While there is lower line support on the triangle at 1.3040, there is also trend line support from the 1.3000 April lows at 1.3165. The break of the larger triangle remains the primary pattern and could well signal a 500 point move.
To open up the lows this year at 1.2630 we need to see a concerted break below 1.2975. Only above 1.3400 targets the 200 day MA at 1.3495.

GBPUSD – the pound continues to edge higher dragging itself above the 1.6170/80 resistance level and keeping the prospect of further gains towards 1.6400, to make it 9 successive up days in a row.
There is some resistance around the 1.6250/60 area, but momentum is now starting to look a touch overbought.
Only a move below 1.6050 retargets the long term trend line support at 1.5900 from the January lows at 1.5235 which continues to act as support on the downside.

EURGBP – while below the resistance at the 0.8220 area the onus remains towards the downside and a move towards the 2010 lows at 0.8065 as the next target.
Only above 0.8220 would retarget the larger resistance at 0.8280 as well as trend line resistance at 0.8300 from the February highs at 0.8505.

USDJPY – yesterday’s dip to the 80.65 cloud support keeps the upside momentum intact. This is where the weekly cloud support now lies and we need to close the week above this level for the upward momentum to remain intact.
The yen continues to find support just above the 80.70 level which keeps the upward momentum. A weekly close below 80.70 argues for further losses towards 79.20.
The US dollar does need to break back beyond the two weeks highs at 81.85/90 to retarget 83.30.