Yesterday's decision by Moody's to put the European Union on negative outlook appears to have been a book keeping exercise, more than any change in perception about the EU's financial position.
It brings it into line to reflect the negative outlooks to the main contributors to the EU budget, namely, Germany, France, UK and the Netherlands who are also on negative outlook with the same agency. Nevertheless it highlights the concerns about the debt sustainability and growth prospects of the main EU contributor nations.
Spain's financial problems remain front and centre of the markets attention ahead of this week's ECB rate meeting where it is hoped that the ECB President will announce measures to keep a lid on short term Spanish and Italian bond yields.
Reports from a closed door session of the European parliament yesterday suggested that the ECB President had stated that, in his opinion, buying short term bonds of up to three years did not amount to state financing. These reported comments have helped support the euro in the last 24 hours; however it is still not clear whether or not the Bundesbank will agree with this interpretation.
Spain certainly needs help given that Andalusia became the latest region to ask for aid from the soon to be created regional bailout fund.
The latest economic data continue to point to an economy in great difficulty, while yesterday's manufacturing PMI remain stuck in contraction territory at 44. Today's unemployment numbers could well add to the overall gloom surrounding the Spanish economy where youth unemployment is over 50% and ordinary unemployment is over 20%. It is even higher in regions like Andalusia where it is over 34%.
In the UK concerns about the state of the economy were lifted slightly yesterday after manufacturing PMI for August surprised with a stronger than expected bounce back in activity to 49.5 from the 45.4 in July. While not enough to suggest that Q3 will show a recovery in growth after three successive quarters of contraction, the data has raised the possibility that things aren't as bad as the official figures suggest.
Today's release of construction PMI numbers are expected to come in at 50.1, down slightly from July's 50.9.
The Reserve Bank of Australia as expected looked past the recent weak nature of economic data and left rates unchanged at 3.5%.
The US returns from its long Labour day holiday weekend today in the wake of last week's Jackson Hole meeting with markets convinced that further QE will be announced at this month's meeting of the Fed on the 13/14th September.
While Bernanke's concern about the unemployment level appears to have struck a chord, today's ISM manufacturing numbers for August, as well as this week's August ADP and non-farm payrolls data could well limit his ability to act.
Expectations are for the ISM to recover slightly from July's 49.8 to stagnation of 50.1, while the Markit PMI number is expected to come in at 51.9, unchanged from the previous month.
EURUSD - the single currency continues to hold up fairly well closing above the 100 day MA at 1.2578 for the first time since the 3rd May.
The balance of risk appears to be shifting towards a break higher towards the June highs at 1.2750, on a break above last week's high at 1.2635.
Longer term support comes in at the 1.2420 level which is also primary trend line support from the 1.2045 lows.
The key level on a monthly close remains the 200 month MA at 1.2060.
GBPUSD - the 1.5910 level continues to offer the main obstacle to a move towards 1.6020.
The 61.8% retracement of the 1.6305/1.5270 down move if broken could see the pound move back as far as 1.6060. .
While unable to break through this level the cable remains at risk of sliding back towards last week's lows at 1.5765. The long term trend line support lies at 1.5555 from the 1.5240 lows.
EURGBP - last week's failure to move above 0.7960 and the bearish engulfing candle on the daily charts from last Wednesday keeps the pressure on the downside for a move towards the 0.7880 support area.
A break below the 0.7880 level has the potential to retarget the 0.7820 area, while on the upside a move above 0.7965 targets a move to 0.8000.
USDJPY - last week's close below the weekly cloud support suggests we could well see further US dollar losses towards the 78.07 trend line support from the all time lows at 75.35.
While below 78.80 the risk of a move back to the range and August lows at 77.80 remains.
Above the 78.80 resistance there is also resistance at the 200 day MA at 79.27 which needs to be overcome to target a return towards the highs last month.