Sterling continues to be buoyed, especially against the Euro making new 4 month highs, after CPI data came in well above expectations at 2.9%. It now seems pretty much certain that the governor of the Bank of England, Mervyn King, will have to write to the Chancellor next month, especially with the re-imposition of the VAT rate, to explain why CPI rose more by than 1 % above its target level in January. It also means that there is little chance of further quantitative easing.

The Euro continues to struggle as German economic sentiment took a bigger than expected tumble in January. The ZEW Indicator of Economic Sentiment for Germany decreased by 3.2 points in January to 47.2 points from 50.4 points in the previous month. Economists had anticipated a smaller decline to 49.8. Sovereign debt concerns also weighed as it looks to test key levels against the dollar and the pound.

EURUSD – the Euro looks set to break the 200 day moving average at 1.4280/90 and has also broken below the 116.70 level on the Euro index.

GBPUSD – the cable is benefiting from the strength of the pound on the crosses, making new highs today at 1.6460 before slipping lower in afternoon trade. Cable should find some level of support around yesterday’s lows at 1.6310, as well as the 1.6270 area.

EURGBP – poor European economic data combined with UK inflation data has put the Euro under more pressure today, as it heads towards the September 2009 lows and July highs between 0.8690/0.8710. Resistance is a long way back now at 0.8850, while there is also minor resistance at 0.8790.

USDJPY – the dollar managed to find support at the 21st December lows between 90.20/30 and has since rebounded pushing back through 91.00. There is a minor resistance at 91.30, while behind that there is also resistance at 91.70.
If we can sustain this move then we can see a re-test of the 200 day moving average at 93.20