Yesterday’s slide in the pound was a little puzzling given the better than expected public finance figures for January which showed that the UK government collected more tax revenue than it spent, to the tune of £10.7bn, making it highly likely that the Chancellor will undershoot his borrowing target for 2011 of £127bn.

This has caused some speculation that this may prompt the Chancellor to spend some money in the March budget, but this doesn’t seem likely especially in light of ratings agency Moody’s downgrade warning last week.

Today’s publication of the latest Bank of England minutes are expected to shed light on the reasoning behind the latest injection of £50bn into the UK economy despite the recent recovery in economic activity seen since the beginning of the year. Was the vote unanimous, or was there a split on the committee between those asking for the £50bn, and those who are more dovish who wanted £75bn.

The passing of the latest bailout plan for Greece, while a welcome relief to a market suffering from bailout fatigue, has to be tempered with the acceptance that the problem hasn’t gone away, and for people to think it has would be naïve in the extreme.

Scepticism about it succeeding remains high and Greece’s April’s elections have the potential to be a major flash point, even if we get that far.

The involvement of the IMF remains a key concern as EU leaders strive to build a firewall big enough to prevent a contagion to Italy and Spain.

The take up on the PSI also remains a key element and remains in question with the likelihood that the Greek parliament will retroactively insert collective action classes to force hold outs to accept the haircuts required.

The ECB and central banks actions in engineering preferred creditor status on themselves and not participating is bound to spark legal challenges and likely to trigger CDS insurance and put Greece into default with the ratings agencies.

With all the focus on Greece over the past few weeks the focus hasn’t been as much on the rest of Europe and the concerns about growth in the core, which in recent months has also shown signs of stagnation and contraction.

The latest manufacturing and services PMI data from France, Germany and the euro zone are expected to continue to paint a rather mixed picture.

French manufacturing is still expected to be in contraction, but still show an improvement to 49, while services PMI is expected to slip to 52.

German manufacturing and services PMI are expected to continue to improve as the Germany economy continues to decouple from the rest of Europe with an improvement to 51.5 in manufacturing PMI and to 53.8 in services PMI.

Eurozone manufacturing PMI is expected to stay in contraction at 49.4, while services are expected to stagnate at 50.6.

EURUSD – yesterday’s high at 1.3295 once again fell short of the key resistance at 1.3325, and this level remains the key resistance level preventing a move towards 1.3400, given it is the 100 day MA, and capped the pullback from the January lows at 1.2625. Behind that we also have resistance at 1.3435 which is the 50% retracement of the 1.4245/1.2625 down move.
On the downside we need to see a move below 1.3080 to reopen a move back towards last weeks lows at 1.2975.

GBPUSD – a very negative day for sterling yesterday with the failure to retest last week’s highs at 1.5920 provoking a sharp sell-off. This resistance and 200 day MA remains a key obstacle to further gains; though a close above the 200 day MA could well see 1.6080. The down move needs to hold above the support at 1.5730, while below that the key support remains at the 55 day MA at 1.5610.
Below 1.5600 retargets 1.5500 which is 61.8% retracement of the 1.5270/1.5930 up move.

EURGBP – yesterday’s move above 0.8340 saw the expected move to 0.8400 and recent range highs. The current wider range trade looks set to continue to play out and only a break above broader resistance and range highs so far this year at the 0.8420/30 area, would argue for a deeper move towards 0.8500 quite quickly. Any pullbacks should now find support at 0.8340, while a move below that retargets the 0.8270/80 range lows which remain a key level for any move towards 0.8220, the old support.

USDJPY – the US dollar continues to push on as it closes in on the August 2011 peaks at 80.25 and a break above these levels is required to really kick on.
The four hour charts continue to look stretched which continue to suggest we could struggle anywhere around the 80.00 level and we could wee the dollar slide towards 79.20.
Below 79.20 argues for a deeper move towards the 78.20 level, but last weeks sharp move higher in 10 year US bond yields suggests continues to bode well for further gains.