The latest Q1 GDP data from Spain is expected to confirm that the country has slipped into a double dip recession, with expectations of a contraction of 0.4% in the first quarter. Coming, as it does on top of record unemployment data last week, as well as massive demonstrations against austerity on the streets yesterday, the problems for European leaders continue to mount up.

Talk of creating a “bad bank” for distressed Spanish property loans has been talked about, given the refusal of Spanish ministers to accept the need for a bailout for its debt soaked banking system. Given continued rises in unemployment and a crashing economy Spanish ministers may be faced with no other choice but to accept some form of bailout whether they like it or not.

In some ways Spain can take some comfort that it’s not unique in its problems and the fact that it joins pretty much the rest of Europe, excluding Germany and France in recession, however it doesn’t change the fact that European leaders need to come up with a plan for growth, and quick.

The need for a change of plan away from the austerity approach of debt reduction already appears to be gaining traction, after ECB President Mario Draghi expressed the need for a growth pact last week. It would appear that with governments falling like dominos, EU leaders appear to be waking up to the fact that they are ultimately accountable to their people’s wishes.

With changes of government likely in France and Greece in the next seven days the direction of the debt crisis could take a very different path in the next seven days. Even regional elections in Italy could well mark the end of the honeymoon period for Italian PM Mario Monti as populations pay the price for years of economic mismanagement.

Last week’s lower than expected US GDP number has reignited the inevitable speculation about the likelihood of further QE from the Federal Reserve. In some ways today’s PCE data should be instructive given that it is the Fed’s preferred measure for inflation targeting. The annualised core measure is expected to remain at 1.9% in March, while the monthly figure is expected to rise slightly to 0.2%.

Any figure hotter than that is likely to see the hawks on the FOMC reiterate their opposition to further easing measures in light of the inflation risks.
Personal income and personal spending for March is expected to reinforce concerns about consumer finances with incomes fairly flat around 0.2% while personal spending is expected to slip back from 0.8% in February to 0.4%, suggesting that even if consumers are spending it is coming from savings, or credit.

EURUSD – while the trend line resistance at 1.3290 from the March highs caps the onus remains for a continuation of the sideways consolidation seen since mid-February. A break through 1.3300 targets the 200 day MA at 1.3480.
The lower line support on the triangle now lies at 1.3050, while there is also trend line support from the 1.3000 April lows at 1.3175.
The break of the larger triangle continues to remain the primary pattern and could well signal a 500 point move if it breaks out.
To open up the lows this year at 1.2630 we need to see a concerted break below 1.2975.

GBPUSD – the positive momentum pushing the pound higher continued for the tenth day in a row last week sending it nearer to the trend line resistance at 1.6330 from the 2011 highs at 1.6750.
There is a concern that momentum is now starting to look a touch overbought, despite the bullish signals being given off from both the daily and weekly charts. This suggests a downward test is somewhat overdue towards 1.6050.
Only a move below 1.6050 retargets the long term trend line support at 1.5910 from the January lows at 1.5235 which continues to act as support on the downside.

EURGBP – the single currency continues to weaken and will continue to do so 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 – last weeks close back inside the weekly cloud and below the 80.45 cloud support is a concern with respect to the recent upward momentum and suggests that we could well see further losses.
The risk of a move towards 79.70 initially has increased in the short term and any move could now extend towards 79.20.
For downside pressure to diminish the US dollar does need to break back and close the week back above the weekly cloud at 80.50 and then advance beyond the three weeks highs at 81.85/90.