Last week’s decision by the Bank of England to keep monetary policy unchanged despite poor manufacturing PMI’s last week wasn’t too much of a surprise given that in July the bank voted for an extra £50bn worth of asset purchases. There had been some speculation in some quarters that the bank may well have opted to increase the amount, after we saw in preliminary Q2 data that the economy contracted for the third successive quarter at the end of July. This contraction wasn’t totally unexpected even if the extent of the contraction was, and recent PMI data from last week suggests that the economy continues to struggle. We shouldn’t therefore expect any positive surprises from today’s release of UK June industrial and manufacturing production data. With the extended Jubilee June bank holiday and the wet weather being blamed for the extent of the Q2 contraction, in the figures two weeks ago, it’s not going to be too much of a surprise to see very poor figures for this particular month. June UK industrial production is expected slide 3.5% on a monthly basis from a 1% rise in May, while year on year a drop of 5.3%, even worse than May’s 1.6% decline. Manufacturing production for June is expected to be equally as dire, with a drop of 4.3% on a monthly basis and a drop of 5.7% year on year. These numbers will not fill the Bank of England with any cheer at all ahead of its inflation report tomorrow with expectations high of sharp downgrades in growth and inflation forecasts for this year and next. Though the UK’s problems are bad, they aren’t nearly as bad as they are in Italy with today’s preliminary Italian GDP data for Q2 expected to show a contraction of 0.8%. The industrial production numbers are also expected to disappoint, sliding 1% month on month and 6.8% year on year. These sorts of numbers aren’t likely to improve either, given that Italian PM Mario Monti is looking to push through another €4bn of spending cuts this year, in addition to the €10.5bn announced at the beginning of the year. To push the measures through he has called a confidence vote to ensure the measures pass. Growth concerns are also starting to weigh on the German economy as shown by last week’s very weak PMI data and today’s release of June factory orders is expected to show a sharp decline of 0.8%, a sharp drop from the 0.6% gain in May. EURUSD – the 55 day MA in the 1.2430/40 area continues to cap further gains for the single currency which makes it susceptible to pullbacks in the short term. A break here targets a move to the 1.2600 area and trend line resistance from the 21st May high at 1.2825. The bullish weekly candle from two weeks ago seems to be gearing the market up for a euro rally. It would take a move back below the1.2220/30 area, to undermine that scenario and retarget the 1.2150 area. The key level on a monthly close remains the 200 month MA at 1.2060, the July lows. GBPUSD – long lower tails on the weekly candles suggest a fair amount of support, however upside remains limited while below the 200 day MA and resistance between 1.5740/80. Above here and we could see a move to 1.5910. Key support remains at the trend line support at 1.5470 from the 1.5270 lows and any push lower needs to hold to prevent a move back to 1.5270. Only a close below 1.5240 signals a risk of a return to the July 2010 lows at 1.4950. EURGBP – the single currency has continued its push higher towards the 55 day MA at 0.7975 and trend line resistance at the same level from the February highs at 0.8505. To undermine this scenario we would need to see a push back below the 0.7880 area to retarget the 0.7820 area. USDJPY – the US dollar remains becalmed between support below 78.00, and resistance above 79.30. The cloud support at 77.30 and the May lows at 77.60 remaining a key level. As long as this holds the downside, the risk of a rebound remains quite high. A move above the 79.30 level brings the 80.00 level back into play and then by definition the main resistance at the top of the weekly cloud at 80.45.