For all the fine words and rhetoric about the today’s EU summit being a meeting for growth markets will ultimately determine its outcome on the deeds of EU leaders rather than their words.

The need for actions with respect to Europe’s economy could not have been underscored more starkly than by yesterday’s unemployment figures which showed that the current focus on fiscal austerity was sending unemployment rates sharply higher, particularly in southern Europe.

Protests across Europe seem to capture the mood in Portugal and Spain especially with EU leaders determined to press ahead with their much vaunted fiscal compact despite a widespread acceptance that Spain will miss its budget targets and a refusal by EU leaders to consider concessions in the face of all this unrest.

Whatever EU leaders decide the soaring price of oil could potentially derail any plans after it again hit record euro and sterling highs last night on reports of an explosion at a Saudi Arabian oil pipeline.

Greece’s economy in particular continues to implode with manufacturing PMI hitting 37.7, yet another record low, while youth unemployment hit 48.8%.

Greece did get its provisional aid agreement signed off in principal but only after evidence is provided of the 38 prior actions has been completed and the bond swap is approved by March 8th.

The decision by ISDA yesterday to announce that the Greek bond swap, the insertion of the collective action clauses, as well as the subordination of ordinary bondholders did not constitute a credit event has created some controversy, certainly when you consider the ECB’s role.
This failure by ISDA has the potential to throw the credibility of the whole CDS market into doubt and could trigger a run on other peripheral bonds, especially if investors fear their insurance is worthless.

It seems likely that at some point they will have to bow to the inevitable if the CAC’s are triggered after the 8th March.

On the economic data docket today are German retail sales for January with markets hoping for an improvement after December’s surprise plunge of 0.9%. Expectations are for a rise of 0.2% year on year and 0.5% rise month on month.

The UK continues to set itself apart from Europe’s problems after manufacturing PMI showed a modest expansion in January in contrast to its European neighbours. It is hoped that this morning’s construction data for January also shows a similar pattern with expectations of a reading of 51.3, just below December’s 51.4.

EURUSD – yesterday’s consolidation saw the euro stay above the 100 day MA at 1.3290, but while below the broader resistance at 1.3490 the bearish scenario remains intact.
Only above the 1.3490 level negates yesterdays bearish set up and argues 1.3630.
The move lower now needs to push below the 100 day MA to set up a move towards 1.3180 and then the 1.3000 level. There is interim resistance on pullbacks around the 1.3370 area.

GBPUSD – the cable has so far managed to hold above the 200 day MA at 1.5900 and while it does so supports the move for further gains towards 1.6080 and 1.6120, the November highs.
The 1.5900 level should now act as support in the short term. A close back below 1.5900 would re-target the downside and reopen the 1.5820 and 1.5720 levels while the double support at the 55 day MA and February lows at 1.5645 is a key level.

EURGBP – the decline in the euro has seen the 0.8330/40 area contain the downside for now and keeps alive the likelihood of a pullback towards the 0.8400 level. A move through the 0.8330/40 level retargets the 0.8270/80 range lows.

USDJPY – the US dollar continues to remain resilient as it trades either side of the 81.00 level.
We still need that weekly close near or above the Ichimoku cloud resistance at 81.00 to remain on course for the move to 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.
This low this week at 80.00 remains a key support level, 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.
Below 79.20 argues for a deeper move towards the 78.20 level, and undermines the bullish scenario.