LONDON (SHARECAST) - The single currency continues to remain under pressure on the back of concerns about the Irish debt situation with Portugal’s finance minister already admitting that deteriorating bond market yields could force his country to ask for assistance. EU officials have continued to pressure Ireland into accepting a bail-out with the inevitable loss of fiscal sovereignty that could bring, however the Irish government have remained steadfast in their insistence that they do not need one. This attitude could well change however if bond markets continue to sell-off Irish bonds and the fiscal positions of Irish banks deteriorate even further, and it is this that promises to be the Irish governments Achilles heel, something Irish Prime Minister Brian Cowen acknowledged late last night. As such today’s meeting of EU finance ministers will be focussing on this very issue as bond markets continue to remain nervous, especially in light of further downgrades to Greece GDP figures yesterday by Eurostat. For now Irish bond yields have stabilised, but this is only because the markets perceive that a bail-out is pretty much inevitable, despite Irish protestations. If there has been no change in the next couple of days, then markets can expect the sell-off in bonds to continue and to spread. Rising US 10 year treasury yields have in turn underpinned the US dollar, hitting 2.95%, a three month high, with the yen breaking above 83.00 for the first time in 5 weeks, while the US dollar index touched its highest level since 1st October just above 78.60, and its 50 day moving average. The release of minutes from the recent RBA rate meeting suggested that the recent Australian rate hike was a finely balanced decision, which suggests that there will probably be no further rate hikes until Q1 2011. This could well limit Aussie gains in the short term, and prompt a move towards 0.9660. With UK inflation figures for October due to be released today, the expectation is for CPI to remain at an annualised 3.1%, with a figure in excess of that likely to be even more positive for sterling, while RPI is also expected to be unchanged at 4.6%. However it would be no surprise if the figures came in above expectations on both measures, which makes the comments yesterday from MPC member Martin Weale that the Bank of England should not hesitate to restart its QE program if economic conditions deteriorated a little surprising, and somewhat premature. EURUSD – the move to 1.3500 looks to be unfolding as planned as the single currency continues to remain under pressure. Longer term we still expect to see the euro test the 1.3360 level, which would be 38.2% retracement of the up move from the June lows at 1.1880 to the highs at 1.4280. The 1.3800 level pullback line resistance should contain any rallies in the single currency, with interim resistance around the 1.3700 level. GBPUSD – the pound continues to remain a little sidelined with the resistance around 1.6180 continuing to frustrate, while just above that we have the added trend line resistance around the 1.6300 level. On the downside there is rising trend line support around 1.6020, from the 22nd October lows at 1.5650, while just below that the monthly lows of 1.5960 remain a key level. To minimise the likelihood of a downward correction we need to see a move back above 1.6180 to target 1.6300, while a break of 1.5960 would re-target 1.5880 and then 1.5820 trend line support from the 17th June lows at 1.4645. EURGBP – the euro continues to fall against the pound in line with expectations and a break below 0.8450 trend line support from the August lows around 0.8140 should target 0.8400. The next major support however can be found around the 0.8400 level which is 61.8% retracement of the same move, as the single currency looks set to line up a re-test of the August lows at 0.8140. Intraday resistance can be found around 0.8520 while the larger resistance remains around the 200 day moving average around 0.8580. USDJPY – yesterdays break above 83.00 and daily close above the 50 day moving average at 82.70, now opens up a larger move towards the 84.20 level. Rising 10 year US bond yields, closing around 2.95%, should continue to underpin the dollar here and a break above trend line resistance from the 28th July highs of 88.12 at 83.40, should target a move to 84.20, while above the 82.70 area.

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