Despite concerns about the state of the UK economy the pound continues to hold up well in spite of the continued deterioration of the public finances. Total debt rose above the £1trn mark for the first time ever yesterday, a salutary reminder to the precarious nature of the UK's finances. As if to reinforce those concerns the IMF yesterday downgraded the growth forecast for the UK economy for this year from 1.6% to 0.6%, however when compared to Europe we still appear to be much better off given the IMF predicted that the European economy would contract.

With those growth downgrades fresh in the mind the latest UK Q4 GDP numbers could not have been more badly timed. Given recent economic data, expectations appear to be rather low with economists revising their estimates down in recent days, forecasting a drop from Q3's 0.6% rise to a 0.1% contraction. The year on year figure is expected to show an increase of 0.8%, up from 0.5% in Q3.

At the same time the latest minutes from January's Bank of England meeting are also scheduled for publication and could give an indication as to how much discussion there was with respect to further asset purchases.

In the event of a disappointing GDP number the likelihood of the Bank looking to add to October's £75bn seems quite high at the next meeting in February, and markets may speculate on the likelihood of that in the event GDP disappoints.

In Europe the same concerns about Greece continue to gnaw away at sentiment, while the IMF growth downgrades haven't helped either. There also appears to have been a change in tone from EU leaders with respect to the likelihood of a Greek default and their acceptance of just such an outcome, as they try to increase the pressure on the key players in the PSI game of chess.

Yesterday's slightly better than expected PMI data out of Germany initially boosted optimism that Europe's biggest economy could yet act as an economic anchor for Europe.

Today's January German IFO could well be another key indicator in that perception with minor improvements expected in both the economic expectations from 98.4 to 99 and the business climate from 107.2 to 107.50.

Germany is also expected to sell €3bn of 30 year notes.

In the US in the wake of last nights State of the Union address by President Obama we have the first FOMC meeting of 2012. The three more hawkish dissenters to “operation twist” have left the committee and have been replaced with arguably slightly more dovish members. This meeting will give markets the opportunity to determine the credentials of each new member, as well as how much more dovish this committee will be relative to the old one. At his press conference Bernanke is expected to outline the Fed's new communication strategy to markets with respect to the future direction of the Fed Funds rate forecasts. The last few policy statements have referred to rates remaining low until mid 2013. This could well change and it will be key to future rate expectations as to how far further out this date gets pushed.

EURUSD – yesterday's move to just shy of this months high and resistance at 1.3075/80 saw a sharp pullback to 1.2950, but the lack of follow through suggests that the risk of a rebound towards 1.3250 remains. The single currency needs to get back below the 1.2850/60 support area to reopen a move towards the key 1.2600 level which represents the 76.4% retracement of the up move from the 2010 lows at 1.1880 to last years highs at 1.4940. This support level also coincides with the August 2010 lows at 1.2590. A concerted break below this level would target 1.2480, the July 2010 lows and then on to 1.2000.

GBPUSD – yesterday's move beyond 1.5600 saw the cable close above the 55 day MA for the first time since 15th November and if sustained could argue for a move past trend line resistance at 1.5670 from the August highs at 1.6620 which would then target the December highs around the 1.5770 area. The 1.5500 area should continue to act as support on any move back lower, which if broken, could see a move back to 1.5360. The 1.5270 support area remains a key level and obstacle to further sterling declines towards the 1.5190 level, which remains a key support area given that it is 61.8% retracement of the 1.4230/1.6745 up move. There is also support at 1.5125, the July 2010 lows, a break of which targets 1.4980.

EURGBP - despite a slight overspill beyond the 0.8370/80 area yesterday to 0.8390 the single currency continues to find upside progress heavy going. The risk remains for further gains towards the 0.8420 area on the back of a reaction to today's UK data. While 0.8420 caps the focus remains for further euro losses back towards the September 2010 lows at 0.8200/05, which remain the key obstacle to further declines towards the 2010 lows at 0.8065.

USDJPY – yesterday's break above the confluence of resistance at the 55 day MA and trend line resistance at 77.45 from the 2007 highs at 124.15, has seen the dollar finally break higher.
The next key resistance lies at 78.30 December highs and 200 day MA, and this becomes the next target.
The key support remains around this month's and the November lows at 76.50. Only a move and close below 76.50 opens up the all-time lows at 75.30.

Equity market calls
FTSE100 is expected to open 14 points higher at 5,766
DAX is expected to open 30 points higher at 6,449
CAC40 is expected to open 16 points higher at 3,339
FTSEMib is expected to open 120 points higher at 16,049