Markets continue to pin their hopes on easier monetary policy as a means to avert a slowing economic environment with investors taking comfort from an encouraging RBA minutes overnight and ahead of Bernanke testimony this afternoon. The recent decision by the Bank of England to embark on a further £50bn of asset purchases at the beginning of the month was reinforced by yesterday’s announcement by the IMF that they were slashing their growth forecasts for the UK economy in 2012, from the 0.8% in April to 0.2% now. Policymakers were no doubt helped in their decision this month by the sharp fall in inflation seen since March, partly as a result of the steep 25% fall in Brent oil prices in sterling terms. The IMF weren’t the only organisation to adjust its estimates down for the UK economy as Ernst and Young’s ITEM club also did the same thing, revising their forecast to 0%. They went on to say that inflation was likely to fall back quickly as well, however the recent sharp rebound in Brent prices in the last month as well as soaring food prices, could well undermine that scenario in short order if sustained. June CPI numbers are expected to show a decline of 0.1% in the monthly number and on an annualised basis to come in unchanged at 2.8%. Core prices are expected to push higher to 2.5%. On the retail prices measure, the monthly figure is expected to come in flat while the annual figure is expected to slip back to 3% from 3.1%. Later in the morning the Governor of the Bank of England Mervyn King, and Deputy Governor Paul Tucker are expected to testify on the latest Financial Stability Report, however the questions are expected to be less about the UK economy, and the inflation numbers, and more about the bank’s involvement in the LIBOR scandal after ex Barclay’s CEO Jerry de Missier’s testimony yesterday, so it could be a lively session. Despite growth being such a big concern globally the IMF did keep its latest forecast for the euro area unchanged at -0.3% for 2012, but added the caveat that it could be susceptible to further downward adjustment in the event of further deterioration in the economic environment in Europe and a lack of policy action. The IMF also called on the ECB to do more to support the euro area with further easing measures, and said that its forecasts were dependant on EU leaders delivering on their June promises. Given that EU leaders can’t even agree on what those promises were, or are, that looks a big ask. As it is the ESM will be delayed until 12th September at the earliest, due to the German constitutional court ruling, while German Chancellor Angela Merkel has continued her insistence that there could be no full banking union until full fiscal oversight was in place. As if to underline the stakes with respect to a resolution of the debt crisis Moody’s followed up last week’s sovereign downgrade of Italy by downgrading 10 Italian banks last night, including the two largest Unicredit and Intesa, with negative outlooks. Even Germany is seeing concerns about growth rippling through its economy and business sentiment with the latest German ZEW report set to decline in further for July to -20 from -16.9 in June. In the US yesterday’s disappointing retail sales numbers for June has once again raised questions about the likelihood of further easing from the Fed and today’s testimony by Fed Chairman Ben Bernanke when he delivers the latest monetary policy report on Capitol Hill. Particular interest will be given to any change in tone with respect to last week’s FOMC minutes. Investors will be paying particular attention as to whether he outlines any other policy options beyond the current extension of “operation twist” EURUSD – pullbacks are currently finding difficulty break back above the 1.2300 level and previous reaction lows from June around the 1.2290/00 area.. The price action still points to a move towards 1.1880 and the 2010 lows, but we do run the risk of a bigger short squeeze on a break back through 1.2300, which could see a move towards 1.2370. A daily close back inside the triangle breakout retargets the highs last week and 55 day MA at 1.2680, while behind that the 50% retracement level of the 1.3285/1.2290 down move at 1.2790. GBPUSD – yesterday’s move higher in cable saw the pound head back through 1.5650, and the trend line resistance from the 20th June highs at 1.5780. The 55 day MA at 1.5705 is the next resistance after that, followed by the 200 day MA at 1.5753. The pound now needs to get back below 1.5580, to retarget a move back towards 1.5460 and last week’s lows at 1.5395. Only a move below 1.5250 signals a risk of a return to the July 2010 lows at 1.4950. EURGBP – another three and a half year low yesterday at 0.7830 brings the euro closer to the 0.7784 level, which is 61.8% retracement of the entire up move from 0.6535 and 2007 lows to the 2008 highs at 0.9805. The downside does now appear to be getting a little stretched which suggests we could be in line for a pullback. While below the 0.8000 level, downside pressure predominates, though we also have resistance around the 0.7920 area. The major resistance remains around the 55 day MA at 0.8030 and trend line resistance from the highs this year at 0.8505 at 0.8040. USDJPY – yesterday’s break below the 200 day MA now opens up further losses towards the 78.20 level initially, as well as the May lows at 77.60. The 200 day MA at 79.05 should now act as a cap with the main resistance remaining at the top of the cloud at 80.45.