As far as currency markets are concerned the subject of sovereign debt and Greece remain the focal point, however there is also concern about what President Obama may say about US plans for new financial industry regulation later today, which could increase rules on banks and force separation of investment banking and retail banking, and this has seen the yen rebound slightly.
The Euro has continued to slide lower, with the spread on 10 year Greek bonds blowing out to in excess of 500 basis points yesterday, above its German equivalent, as the likelihood of a Greek default continues to increase.

France has already confirmed its contribution of €6.3bn towards the package, however interestingly Germany has not, and Greece is running out of time with the next rollover due in May, and Greek workers beginning new waves of strikes.
Portuguese and Spanish yields are also now coming under pressure as the debt crisis looks to enter its next phase, with the EU/IMF meeting in Athens set to continue over the next few days, the fear of contagion remains.

On the sterling front, slightly mixed news on unemployment yesterday was taken as a slight positive for the pound, with the focus on declining claimant counts. This was slightly offset by the IMF downgrading its UK growth forecast for 2011 to 2.5%, while keeping its 2010 forecast unchanged at 1.3%, putting it at odds with the OECD earlier this month, whose forecasts were slightly higher.Today’s UK public finance and retail sales data could well alter the markets focus, with respect to sovereign debt, and the current Greece situation, a positive retail sales figure could get pushed to one side over concern about the UK’s own perilous financial situation.

Expectations for public borrowing range between £25bn and £30bn for March, which would give a total figure of PSNBR of between £155bn and £160bn in the fiscal year 2009/10, barring any revisions to previous months. While this would be less than the Chancellor’s revised forecast of £167bn, these would still be bad figures and won’t change the fact that the next government will still have to make some difficult decisions regarding spending, a fact that no political party seems to want to go into detail on.Given the current state of the polls and the prospects of a “hung” parliament, markets will continue to remain nervous, which could weaken sterling between now and polling day.
Retail sales are expected to have risen by around 1% for March.

EURUSD – the Euro continues to remain under pressure, on widening spreads on Club Med countries bonds, and looks set to test towards the previous lows at 1.3270. The longer term upside resistance remains below trend line resistance at 1.3650 and the 1.3700, last weeks highs.

GBPUSD – yesterday’s unemployment figures gave a slight boost to the pound pushing it towards the significant resistance around the 1.5500 area, where there is trend line resistance from the 17th February highs at 1.5815. There is also resistance at the 1.5580 area which is 38.2% retracement of the 1.6875/1.4780 down move.
On the flip side a break below trend line support at 1.5205 would likely re-target the April lows at 1.5120.

EURGBP – the Euro has continued its declines against sterling as investors pull back from Euro denominated assets. It continues to find selling pressure too much to overcome anywhere near to the 200 day moving average at 0.8885. The next support level currently sits at 9 month trend line support around 0.8680. A close and break below this key level on the daily charts would re-open a test of this years low at 0.8600.

USDJPY – the yen has suffered on the recent rebound in risk appetite, as the market chooses to ignore the problems in Europe, but it has managed to recover off its lows on yen buying. The risk of a move towards the 93.70/80 highs of last week, remains while above the 92.60/80 level, which should now act as some level of support. A break back below the 92.60/80 area re-targets 92.20 and the 91.80 level.

Michael Hewson

Market Analyst