One week on from EU commissioner Olli Rehn’s promise that a Greek debt deal was in the final hours of finalisation, and markets are still awaiting confirmation of that fact. It now appears we will have to wait until next Monday 6th February after yesterday’s announcement of an EU finance ministers meeting in Brussels.

This meeting will attempt to agree a new bailout, the size of the haircut applied to private bond holders, as well as new reforms the Greek government needs to undertake, which it is hoped finally draw a line under this long running saga.

The concern is that any new austerity measures will be a step too far, given the recent fiscal deterioration and with the economy in its current state, and no involvement in the debt restructuring from the ECB and EU governments, policymakers could well be throwing good money after bad.

As far as economic data is concerned the European services sector could shed a ray of hope on the European economy with the final release of PMI data for January for Italy, Germany, France and the broader Euro zone.

Expectations are for all but the Italian PMI to remain unchanged from their previous readings, with the Italian PMI improving from 44.5 to 45.4, in line with the improved manufacturing PMI’s earlier this week.

The European consumer, on the other hand could throw a spanner in the works given the awful German retail sales numbers seen earlier this week,

Eurozone retail sales for December are expected to show an increase of 0.3%, up from November’s -0.8%. That was before we saw German sales figures plunge 1.4%, for the same month earlier this week, which suggests that the Eurozone estimate could well be on the optimistic side.

In the UK speculation about further QE next week refuses to subside after yesterday’s construction PMI data slipped back to 51.4, below expectations of 52.5. Today’s release of January services PMI is the most important number given that it makes up over two thirds of the UK economy, with expectations that it could see a slip back to 53.3 from 54 in December. A sharper drop could well make it quite likely that the Bank of England could well embark on a further round of easing next week given policymaker Adam Posen’s comments yesterday, about the lack of lending by banks in the broader economy.

It is by no means certain that other policymakers feel the same way especially given David Miles comments that it would be presumptuous of the markets to presume further QE was a done deal.

In the US the state of the jobs market remains in the spotlight after this week’s ADP numbers came in on the light side of expectations with the January jobs report. Expectations are for January non-farm payrolls to slip back from December’s 200k gain to show a gain of 150k, while December’s figure could also get revised down.

Fed Chairman Bernanke yesterday reiterated his concerns about the health of the US jobs market in testimony to the House Budget Committee, despite recent positive signs in weekly jobless claims and recent monthly payroll reports.

The unemployment rate is expected to remain unchanged at 8.5%.

EURUSD – the single currency continues to remain range bound between this week’s lows at 1.3030 and the resistance at the 1.3240/50 area which is the 38.2% retracement of the down move from the October highs at 1.4250 to the recent lows at 1.2610, remains the key resistance on the topside.
A sustained break below the 1.3050 support area is required to retarget last Wednesday’s lows at 1.2940/50 level.
While below the highs of this week the bearish reversal on the daily candle charts keeps the focus for a move lower.
The key support level remains around the 1.2850/60 area and only below this level reopens a move towards the key 1.2600 level.

GBPUSD – the divergence on the four hour charts continues to suggest we could be nearing a top especially given the proximity of the 200 day MA at 1.5965.
The high so far this week is at 1.5880 and I certainly wouldn’t rule out further gains towards these highs.
It still needs a sustained move back below 1.5740 to retarget this weeks low at 1.5640, while below that the 1.5530 area and last weeks low could see some buying interest as well.

EURGBP – another choppy day yesterday saw the euro swing between the 0.8340 level and the support at the 0.8275 level. The onus remains for a move lower while below the larger resistance level at the 0.8420 level.
The January lows at 0.8220 remain the next target on a break below 0.8275, but it would require a break below the September 2010 lows at 0.8200/05, to target the 2010 lows at 0.8065.

USDJPY – no change in tone here after this week’s move below the 76.50 level the mood has turned decidedly bearish, with the risk for a move back towards the all time lows at 75.30. The US dollar needs to get back above the 76.50 level to stabilise in the short term and alleviate the downside pressure.
The 200 day MA at 78.25 remains the key barrier to a US dollar turnaround after last week’s failure at that level.