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The BOE released a dovish quarterly inflation report in May, lowering both inflation and GDP growth forecasts from February projections. Policymakers also cited the worsening situation in the Eurozone would affect the UK’s path to recovery and there was a “risk of a storm heading our way from the continent”.

The central bank revised down its growth forecast for this year to +0.8% from +1.2%. The growth forecast in 2 years fell from +3% to 2.6% in the latest report. As stated in the report, prospects for the country’s growth are “unusually uncertain”. While “stimulus from monetary policy should help to support activity”, “continued strains within the euro area, tight credit conditions and the fiscal consolidation are all likely to temper the pace of expansion”. Policymakers concerned that the Eurozone crisis would be the biggest threat to UK’s recovery with Governor Mervyn King saying the bloc was “tearing itself apart” and the UK would not be “unscathed”. He said that there was a “risk of a storm heading our way from the continent”.

Concerning inflation, the forecast in 2 years was revised to +1.6% from previous projection of +1.8%.

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Euro is firm against dollar but fails to extend gain as markets remain cautiously optimistic on Eurozone finance minister meeting. Luxemburg prime minister Juncker tried to cool expectations and that that it won’t be possible to ” reach a volume of EUR1T” as the “prerequisites” are no there. Juncker said that a proposal to boost the combined firepower of EFSF and ESM to EUR 1T won’t be approved today as it “would not find support”. Nonetheless, increasing the fund is widely expected as EU Economic and Monetary Affairs Commissioner Rehn said that he’s confidence to such a boost as it’s time to “complete the crisis response by further reinforcement of the euro-area financial firewalls”.

There were speculation that the combined lending power of the EFSF and ESM, when they run parallel till mid-2013, could be raised to EUR 940b. Though, it’s facing strong opposition from Germany which, as finance minister Schaeuble said, a combined size of around EUR 800b is already sufficient. It’s believed that the final lending capacity could be of EUR 700b to EUR 800b.

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The Dollar Index is trading in tight range between 77.50 and 76.50 as a result the benchmark equity index of the Dow Industrials traded flat. Though 76.00 ranges are expected to again act important support in medium term; historic resistance in the Dollar Index is seen in the ranges of 79.50 to 80.20 to 81.30.Key equity index of Dow Jones Industrials (DJIA) is expected to trade range bound between 11600 to 11200 ranges. Historic correlation between DJIA Vs DX suggests short-term top being posted in the USD and short-term bottom being posted in the Dow, though the major trend still remains range bound with the Dollar Index range boundbetween 76.00 and 80.00.In NYMEX December Crude is expected to trade range bound between $84.00 and $90.00 for couple of days. Full article…

– (RU) Russia Gold & Forex Reserve w/e Mar 23rd: $510.8B v $505.4B prior
– (DE) Germany Feb ILO Employment (Seasonally adj): 41.406 v 41.37M prior; Unemployment Rate: 5.7% v 5.7% prior
– (UK) Mar Nationwide House Prices M/M: -1.0% v +0.2%e; Y/Y: -0.9% v +0.9%e
– (ES) Spain Jan Total Housing Permits M/M: -11.3% v 4.8% prior; Y/Y: -25.0% v -27.9% prior
– (ES) Spain Mar Preliminary Consumer Price Index Y/Y: 1.9% v 1.9%e; CPI EU Harmonized Y/Y: % v 1.8%e
– (DK) Denmark Feb Unemployment Rate: 4.2% v 4.0% prior; Gross Unemployment Rate: 6.2% v 6.1%e
– (HU) Hungary Feb Unemployment Rate: 11.6% v 11.4%e
– (SE) Sweden Feb Retail Sales M/M: 1.2% v 0.1%e; Y/Y: 3.4% v 1.6%e v 1.5% prior
– (ZA) South Africa Feb PPI M/M 0.9% v 0.6%e; Y/Y: 8.3% v 8.1%e
– (DE) Germany Mar Unemployment Change: -18K v -10Ke; Unemployment Rate: 6.7% v 6.8%e
– (NO) Norway Mar Unemployment Rate: 2.6% v 2.6%e
– (UK) Feb Net Consumer Credit: £0.4B v £0.2Be; Net Lending: £1.6B v £1.4Be
– (UK) Feb Mortgage Approvals: 49.0K v 57.2Ke
– (UK) Feb M4 Money Supply M/M: -1.9% v 1.5% prior; Y/Y: -3.4% v -1.8% prior; M4 Ex IOFCs 3M Annualized: 2.5% v 3.9% prior
– (UK) Jan Index of Services M/M: 0.2% v 0.2%e; 3M/3M: 0.3% v 0.3%e
– (HK) Hong Kong Feb Retail Sales Value Y/Y: 15.7% v 23.7%e; Retail Sales Volume Y/Y: 10.1% v 16.6%e
– (EU) Euro Zone Mar Business Climate Indicator: -0.30 v -0.16e; Consumer Confidence: -19.1 v -19.0e; Economic Confidence: 94.4 v 94.5e; Industrial Confidence: -7.2 v -5.8e; Services Confidence: -0.3 v -0.8e
– (PT) Portugal Mar Consumer Confidence: -54.5 v -55.8 prior; Economic Climate Indicator: -4.8 v -4.9 prior
– (BE) Belgium Mar CPI M/M: 0.2 v 0.6% prior; Y/Y: 3.4 v 3.7% prior

Fixed Income:
– (DK) Denmark sells total DKK11.9B in 2-month, 5-month and 9-month Bills
– (IT) Italy Debt Agency (Tesoro) sold total €5.75B vs. Full article…

The BOE’s minutes for the March meeting indicated that policymakers remained split in the asset buying program. Adam Posen and David Miles supported more stimulus (adding an additional 25 pound) as it was ‘warranted to reduce the risk that persistently weak growth would damage the future supply capacity of the economy’. Yet, the proposal was overruled by the remaining 7 members to maintain the program as it was.

Policymakers acknowledged that improved market sentiment in the financial markets and expected underlying economic growth to pick up later this year. They also stated that recent economic data evolved ‘in line with expectations and that there had been little change to the balance of risks to UK activity and inflation’. Yet, the central bank showed concerns over inflation as there was a ‘clear risk surrounded the outlook for crude oil prices’. As stated in the minutes, ‘if oil prices were to rise to a level significantly higher than the committee currently assumed, then that would tend to slow the global and domestic recovery, reduce supply growth and put upward pressure on domestic costs and prices’.

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EURJPY- While the cross continues to hold above the 104.95 level, its Sept 27’2011 high, risk remains higher towards its Monday high at 107.67 level.A convincing violation of here  will resume its corrective recovery and target further upside towards the 107.99 level, its Sept 09’2011 high and then the 109.95 level, its Sept 06’2011 high. Alternatively, a turn lower will bring further declines towards the 104.95 level, its Sept 27’2011 high. A reversal of roles is likely at this level with a loss of here opening the door for a move further lower towards  the 102.72 level. Further support lies at the 100.75 level, its Oct’2011 low and subsequently the 100.00/99.87 levels, its July’2010 lows. All in all,  though hesitating, EURJPY still maintains its corrective upside risk.