EU finance ministers are expected to consider a bailout deal of €130bn for Greece on Monday, while the window for the PSI bond swap would be between 22nd February and the 9th March.

A Greek government spokesman said he expected to the deal to be approved by EU ministers, but any aid remains contingent on 24 “prior actions” that need to be fulfilled which suggests that the rally in the single currency yesterday. could be somewhat premature.

It therefore pays not to get too carried away given we’ve seen so many false dawns over the past few months. As with all things to do with Europe, significant obstacles still remain with tough conditions to be laid down in exchange for the aid, which could see Greece baulk at the fiscal oversight demanded, and for any so-called deal unravel.

While a bridging loan option has been taken off the table, a number of other controversial options have not, namely fiscal oversight on the ground in Athens, in controlling the purse strings so to speak, and an escrow account option.

There is also a concern that the latest deal still falls short of what is required in terms of the reduction of the debt to GDP ratio, with numbers of 128% of GDP being bandied about, and that remains a concern, notwithstanding the implementation risk, going forward.

And so we must wait a little longer while divisions still remain, not only in Greece, as the smaller parties remain implacably opposed to the austerity measures and erosion of sovereignty it might entail, but also among EU policymakers with opinion divided about whether it would be cheaper to let Greece default.

It was also announced that there will be another EU summit on the 2nd March to discuss a debt firewall, amongst other things.

In the UK the latest retail sales for January are due out and are expected to drop back sharply after December’s 0.6% rise.

It seems likely that a lot of spending was brought forward to before Christmas from the traditional January sales period on the back of heavy discounting as retailers tried to bump up their Christmas figures.

Expectations are for a fall of 0.3%, however yesterday’s surprise rise in Nationwide consumer confidence could see a better than expected number if that confidence manifested itself in some retail therapy.

In the US yesterday’s better than expected economic data, particularly on the jobs front continued to feed into equity markets across the pond and today’s CPI numbers aren’t expected to dampen the enthusiasm that the US economy continues to show signs of life. January CPI is expected to rise 0.3%, up from a flat reading in December while the year on year number is expected to decline from 3% to 2.8%.

EURUSD – yesterday’s move to three week lows at 1.2975 provoked a sharp reaction and an ensuing short squeeze that could well have further legs in it and could go back as far as 1.3190 which would be 61.8% retracement of the down move from 1.3325 to yesterday’s lows at 1.2975. The 1.2975 level was a full 50% retracement of the entire up move from the January lows at 1.2625 to the February high at 1.3325. The key level on the upside still remains at the 1.3320 area which is the 100 day MA, while behind that there is also the 1.3435 area which is the 50% retracement area of the same move.

GBPUSD – one of those sharp cable rallies that sterling is famous for cleared out all the stale short positions after failing to push below the 1.5650 area yesterday. The sharp move higher above 1.5800 does have the potential to go all the way back to the previous high and 200 day MA at 1.5920. While below this level any gains remain limited.
The key support remains around the 55 day MA at 1.5600 over the coming days after the bout of sterling weakness seen in the past day or so. Below 1.5600 retargets 1.5500 which is 61.8% retracement of the 1.5270/1.5930 up move.

EURGBP – yesterday’s move lower rebounded from the 0.8270/80 support level identified in yesterday’s note. To keep alive the move towards 0.8220 the old support, now resistance at 0.8340 needs to hold on any rebound. Otherwise we could well be looking back to the 0.8400 level and recent range highs so far this year at the 0.8420/30 area. Any break could well see 0.8500 quite quickly.

USDJPY – the move towards the 80.00 level continues apace as the US dollar pushed up towards above the 79.00 area.
For now the move seems a little overbought on the four hour charts which suggests we could see further range trading in the short term above the 78.20 level, but yesterday’s sharp move higher in 10 year US bond yields also coincided with this US dollar move higher.
As long as we stay above this week’s key break-out area of the 200 day MA, then further gains seem the most likely outcome.
The key support remains above the 76.50 level and expect to see further range trading in the absence of a break above the 200 day MA, with interim support also at 77.30.