LONDON (SHARECAST) - The euro continues to remain fairly well supported on the day that a team of IMF officials arrive in Dublin to look over the books of the Irish banks, as fears about the fiscal situation spiralling out of control continue to recede. Talk of “substantial contingency capital funding” for Ireland’s banks by the Irish finance minister have also served to soothe frayed nerves in the investment community and the bond markets. However we’ve been here before earlier this year with Greece, with the apparent promise, or expectation, of imminent action, and then nothing. Furthermore there is no guarantee that Ireland would accept any money without certain guarantees about non interference in its ability to set its own tax rates, which some European ministers have stated is up for grabs. Event risks around this still remain, and it remains highly unlikely that markets will settle down properly until after the 7th December when the Irish budget is due to be voted upon in the parliament. To highlight the current uncertainty yesterday Spain managed to get away a tranche of 10 and 30 year bonds, however yields were significantly higher than previous issues, by about 50 basis points. Other event risks today include fears that China may raise rates again to combat spiralling food prices, and Friday’s tend to be the day that they act on monetary policy. The pound also received a boost yesterday from better than expected October retail sales figures, snapping a series of declines, coming in at 0.5% as it rebounded after its recent losses. The US dollar gained some support yesterday especially against the yen where it hit a six week high on the release of the Philadelphia Fed business index figures which surprised to the upside giving the greenback a welcome boost, sending US 10 year bond yields back above 2.95% briefly. Today we have the European Central Bank conference where a number of key note speakers will be Trichet and Weber from the ECB, Paul Tucker from the Bank of England and Ben Bernanke from the Federal Reserve, where he will be in all likelihood be quizzed quite heavily on the necessity of the latest round of QE2, and all of this before the US open. EURUSD – the single currency continues to pull back ground edging back through 1.3640 and towards the 1.3700 level. Despite the current pullback the expectation is that it won’t exceed the 1.3800 break out level. While below this level and the 1.3765/70 level, which is 38.2% retracement of the down move from the highs at 1.4280 to the lows at 1.3445, the emphasis remains firmly to the downside towards the 1.3360 level. The 1.3360 target level is also a 38.2% retracement level but of the up move from the June lows at 1.1880 to the highs at 1.4280. A break of 1.3360 would then target 1.3080 which is the 50% retracement level of the same earlier up move. GBPUSD – the pound continues to hold above the 1.5870/80 rising trend line support from the 17th June lows at 1.4645. This area remains a key support level as it is also near the 50 day moving average support as well. Yesterday’s move higher unexpectedly took out the resistances at around 1.5960, the previous lows of the month as well as above that at 1.6030 and now looks set for a re-test of the 1.6105 level, which should hold. 1.5960 should now act as minor support on dips, while a break and close below the longer term trend line support at 1.5870/80 could well target a strong move towards 1.5510 which is 38.2% retracement of the entire up move from the May lows at 1.4230 to the 1.6300 highs earlier this month. EURGBP – the single currency continues its attempts to push from the rising trend line support from the August lows around 0.8140, now at 0.8470. Yesterday’s rally towards was unable to break above the 200 day moving average at 0.8563 and while below this key level the risk remains for a move lower on a break of this trend line to head towards the next major support around the 0.8400 level which is 61.8% retracement of the 0.8070/0.8940 up move. The objective remains a re-test towards the August lows at 0.8140, while a close back above the 200 day MA would then signal a turn around in fortunes back towards 0.8650. USDJPY – a new high yesterday around 83.80 continues to reinforce the view that we could see a move towards the 84.20 area. US 10 year yields again hit highs of above 2.95% yesterday before slipping back. While these yields remain fairly buoyant and while the US dollar continues to remain above the 50 day moving average at 82.70, the risk remains for a larger move towards the 84.20 level. If 10 year US bond yields did slip back, we could see a move back below 82.70, which could re-target the 81.80 area.

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