Yesterday’s UK budget proved to be every bit the anti-climax markets suspected it might be with the public finances and the Bank of England minutes providing more of a market reaction than the Chancellor’s hour long speech.

That’s not to say there was nothing good in it, however much of it had already been pretty much telegraphed beforehand and there was no surprises, which should have pleased the ratings agencies.
Fitch described it as fiscally neutral and reiterating that the UK is vulnerable to adverse shocks.
The task facing the Chancellor remains challenging nonetheless and while his measures to help consumers are welcome, the effects of them will take a while to kick in, and he remains a hostage to fortune of events in Europe.

Today’s retail sales numbers for February are likely to be a reminder of that despite the fact that four out of the last five months have seen positive retail sales numbers. Given recent rises in petrol and food prices it seems likely that the last two months of gains could well come to an end with a decline of 0.5% expected this morning.

In Europe measures to generate growth remain as challenging as ever with European finance ministers having to struggle with the strait jacket that is the euro currency and the fiscal compact.

It would appear that Germany remains the outlier in Europe with respect to growth, with March manufacturing and services PMI data for March expected to improve to 51 and 53.1 respectively.

French PMI’s are expected to stagnate, while Eurozone equivalent data remains a different matter with manufacturing and services PMI data expected to remain in contraction territory at 49.5 and 49.2, dragged down by appalling data from the southern European economies.
Industrial orders for January aren’t expected to fare any better with expectations of a further annual decline from -1.7% to -3.1%, with the monthly number expected to fall 2.2%.

Elsewhere in Europe Italian PM Mario Monti soon discovered the size of the task ahead of him with respect to labour reforms when Italy’s largest trade union announced a one day strike after the two parties failed to reach agreement and the government vowed to press ahead to give companies more flexibility to fire workers for economic reasons.

In the US after yesterday’s disappointing housing data, markets will be hoping that the recent improvement in weekly jobless claims data continues along its current path of lower claims, with expectations that the figure will come in at around the same level as last week at 351k.

Equity markets across Europe are expected to open slightly lower this morning as concerns about the economy in China continue to unsettle investors after HSBC manufacturing PMI contracted by much more than expected after recent months had shown some semblance of a recovery. The reading dropped from 49.6 to 48.1, its lowest reading since November.

EURUSD – the highs at 1.3290 have once again contrived to cap the upside momentum in the euro for now. While below 1.3300 the risk remains for a lower euro while a significant break above the 1.3290 level retargets this year’s highs at 1.3490.
On the downside we once again found support around the 1.3175 level and this needs to break to retarget a move back towards the 1.3070 level. On the downside the key support remains the February lows at 1.2975 on the way to 1.2800.

GBPUSD – yesterday’s failure to get above the 1.5930 level precipitated a pullback to some interim support at the 1.5820 area. A break below 1.5820 and the lows of this week has the potential to retarget the larger support level at 1.5610 and last week’s low. It is also 50% retracement of the entire up move from the 1.5240 lows to the 1.5990 highs, remains a key support.
Above the 1.5930 area has the potential to target a move to the 1.6000 level and even the October and November highs at 1.6170.
A break below 1.5610 argues for further weakness towards 1.5530, the 61.8% level of the same move as well as 1.5420.

EURGBP – a brief spill over to 0.8370 lacked the impetus to retest the 0.8400 level and as such the single currency slid back to the 0.8320 area.
While below the 0.8400 level the focus remains for a move towards a retest of the January lows at 0.8220, on a break below the 0.8280 level.

USDJPY – we now have twin highs around the 84.10/20 level and the failure to push on towards the 85.15 level could well precipitate a push back towards the key support at 82.85 which is the 38.2% Fib level of the move from the 2010 highs at 95 to last years low at 75.30. A break below here could well see a deeper correction towards the 80.60 level. The bias remains for a move towards the 85.15 level which is the 50% level of the same move from the 2010 highs.