It wouldn’t be an ordinary week in Europe if Greece wasn’t somehow at the forefront of news flow and this week is set to be no different, with the results of the private sector bond swap deal set to be announced later in the week.

Early indications are that it is not going according to plan with concerns over the level of private participation. Last weeks controversial decision by ISDA not to rule that Greece had defaulted could well once again be put to the test if more than 75% of bond holders do not take up the offer and Greece has to activate the collective action clauses (CAC’s) inserted retrospectively last week.

Ratings agency Moody’s late on Friday also became the last of the ratings agencies to downgrade Greece to its lowest possible rating, in the wake of the deal thrashed out last week.

The new fiscal compact agreed by EU leaders last week has already been put to the test by Spain’s Prime Minister insisting that he would cut the deficit from 8.5% to 5.8%, and not 4.4% as demanded by Brussels, thus undermining the credibility of the new pact in its very earliest stages.

Today\'s final services PMI numbers for February are expected to highlight the problems facing the Spanish economy, coming in significantly below 50 once more.

German Chancellor Angela Merkel could face an unexpected challenge as a result of the new compact due to the fact that it allows external sanction for law breakers and as such comes under the constitutional rules laid down under the German constitutional court, which requires a two thirds parliamentary majority.

While this unlikely to be a problem it could well mean that the German leader will require opposition support and that could require some form of quid pro quo.

With concerns about the lack of growth a constant concern today’s final release of February services PMI data is expected to underline these worries, especially as EU leaders have so little leeway in budgetary terms as a result of the new fiscal compact.

The numbers are not expected to change too much from their previous readings with Italy set to improve slightly to 45, but France to remain at 50.3, Germany at 52.6 and Eurozone at 49.4.

Later in the morning in the wake of last weeks poor German retail sales, the latest Eurozone retail sales numbers for January are also expected to disappoint with a monthly decline of 0.1%, annualised into a decline of 1.5%.

The UK continues to set itself apart from the problems in Europe despite the fact that it remains one of the key export markets for goods and services. The Lloyds Business Barometer for February continues to show improvement moving into positive territory for the first time in some months improving to 1 from -11.

Last week’s February construction PMI surprised significantly to the upside coming in at 54.3, raising expectations that Q1 could well see a return to growth despite manufacturing slipping back slightly more than expected.

Today’s services PMI numbers for February will reinforce that hope even though we could well see a slight dip from January’s blow out number of 56. Expectations are for a slight dip to 54.9 which even so, won’t be too shabby.

In the US markets were slightly disappointed with last week’s ISM numbers, which came in rather below expectations, so particular attention will be paid to Non-ISM numbers due out later and these too are expected to cool slightly from January’s 56.8, but only to 56.1 for February.

EURUSD – Friday’s break below the 100 day MA at 1.3290 saw the ensuing move to 1.3180, which opens up the possibility of further declines towards the 1.3000 level. The next support can be found at 1.3145 from the lows at 1.2625. While the 4 hour charts remain oversold there is a risk of a rebound back towards 1.3370, which is the breakout level from the double top formation at 1.3490.
Only above the 1.3490 level negates the bearish set up and argues 1.3630.

GBPUSD – Fridays sharp move lower back below the 200 day MA at 1.5900 undermines the bullish scenario towards 1.6080 and reopens the risk of further declines in the short term.
The 1.5900 level should once again act as resistance in the short term. A break back below the 1.5820 support and last week’s lows at 1.5800 retargets the 1.5720 level, while the double support at the 55 day MA and February lows at 1.5645 is a key level.

EURGBP – the euro continues to make new daily lows as it approaches trend line support at 0.8300 from the January lows at 0.8220.
Further downside pressure continues to be the dominant theme; however we could see pullbacks towards the 0.8400 level. A move through the 0.8300 level retargets the January range lows.

USDJPY – Friday’s close above the weekly Ichimoku cloud resistance at 81.00 increases the prospects for further strong US dollar gains over the coming weeks. This is an important signal as in the four times the dollar has done this since 1988 it has gone onto post significant gains in the ensuing months.
The first target remains the 82.85 area which is the 38.2% retracement of the entire down move from the 95.00 highs to the all time lows at 75.30. Only a weekly close back inside the cloud would throw this scenario into doubt.
The top of the cloud at 81.00 should act as some support as should last week’s low at 80.00, though even a drop to 79.20 wouldn’t damage the current upward momentum but we need to see a close above the weekly Ichimoku cloud resistance at 81.00 to reinforce the case for further gains.