Markets continue to be quite sanguine for now about the slow progress of the Greek PSI debt talks. It now appears that any deal might not be concluded until 13th February, despite Greek finance minister Venizelos insistence at the end of last week that a deal was in its final phase.

It would appear that last nights rejection by European finance ministers of the private creditors so called line in the sand of a 65%-70% haircut, and a 4% coupon hasn’t really impacted sentiment that much. EU officials want the creditors to accept a coupon of 3.5% on their exchanged 30 year Greek bonds.

With this issue unresolved the latest talks about a second Greek bailout are also unlikely to make much progress either, given that the two are contingent on each other.

The state of the European economy will also once again come under scrutiny this morning in the wake of the latest growth downgrades as markets get to digest both manufacturing and services PMI data for January for France, Germany and the Eurozone.

It’s not expected to be comfortable reading though some improvement is expected from German and Eurozone PMI. German manufacturing is expected to improve from 48.4 to 49, while services PMI is expected to remain at 52.4. Eurozone manufacturing PMI is expected to improve from 46.9 to 47.2 and services PMI from 48.8 to 49.0.

The French data on the other hand is expected to show further deterioration with manufacturing expected to slip from 48.9 to 48.6 and services expected to slip from 50.3 to 50.

Eurozone industrial new orders for November are expected to slide with expectations of a decline of 2.5%.

This continued weakness in economic data is expected to keep the focus on the deteriorating fundamentals in Europe and also increase the pressure on Germany to adopt a less austere approach to the problems in Europe.

Other key events today include 3 and 6 month Spanish T-bill auctions but these are expected to pass without too much fanfare given the success of last week\'s ones.

In the UK the pound has had a rather poor last 24 hours over concerns about the economic outlook in the UK, as well as concerns about the possibility of a poor Q4 GDP number on Wednesday. This could well overshadow the Bank of England minutes released at the same time where markets will be looking for clues as the timing of any further measures by the MPC to add to the QE program.

Today the latest UK public sector borrowing data for December is expected to improve from November’s £15.2bn to around £12.4bn, which should keep the Chancellor inside his borrowing targets for this fiscal year.

EURUSD – Monday’s failure to push below the 1.2850/60 support area saw the single currency rebound back through the 1.3000 level yesterday hitting 1.3050 in the process. This raises the possibility that we could see a deeper correction towards 1.3250, but would not change the overall downside bias of a move towards 1.2500.
The key support remains near to the key 1.2600 level which represents the 76.4% retracement of the up move from the 2010 lows at 1.1880 to last years highs at 1.4940. This support level also coincides with the August 2010 lows at 1.2590.
A concerted break below this level would target 1.2480, the July 2010 lows and then on to 1.2000.

GBPUSD – yesterday’s up move was contained at the 1.5600 level and 55 day MA which has contained every cable rally since the end of November.
To stabilise the cable needs to close above the 55 day MA and take out trend line resistance at 1.5670 from the August highs at 1.6620 to then target the December highs around the 1.5770 area.
The 1.5500 area should now act as support on any move back lower, which if broken, could see a move back to 1.5360.
The 1.5270 support area remains a key level and obstacle to further sterling declines towards the 1.5190 level, which remains a key support area given that it is 61.8% retracement of the 1.4230/1.6745 up move. There is also support at 1.5125, the July 2010 lows, a break of which targets 1.4980.

EURGBP - the 0.8370/80 area continues to do its job capping the potential for further euro rebounds in the short term. Given the extent of yesterday’s rebound we could well see further gains towards the 0.8420 area which has capped every euro rebound since 15th December.
While 0.8420 caps the focus remains for further euro losses back towards the September 2010 lows at 0.8200/05, which remain the key obstacle to further declines towards the 2010 lows at 0.8065.

USDJPY – the US dollar continues to find support above the 76.50 area trading steadily above this level. The resistance remains at the confluence of the 55 day MA at 77.55 and trend line resistance at 77.70 from the 2007 highs at 124.15.
The key support remains around the November 2011 lows at 76.50 which prompted last week’s pullback. Only a move and close below 76.50 opens up the all-time lows at 75.30.