Concerns about Greece continue to nag away at investors even as the single currency continues its recent rebound to its highest levels this month; however this is a double edged sword given that a higher euro is the last thing the weaker EU economies need, or want for that matter.

Today sees representatives of the IIF return to Athens on behalf of the private sector bondholders to try and close the gap between them and the Greek government in respect to the “voluntary restructuring”. Given comments by BNP Paribas chairman Prot yesterday evening that the banks had made their maximum offer it is hard to see what agreement can be reached unless Greece and the EU relent on the 3.5% coupon.

Given the deadlock in the PSI a new element has come in to play, namely the Greek bond holdings of the ECB, after IMF head Christine Lagarde lobbed a hand grenade into the debate by suggesting that the ECB may have to take a haircut on its €40bn worth of holdings, to get Greek debt down to a sustainable level.

While this is a natural development given that the ECB is not a preferred creditor, it hasn’t gone down too well at the bank, or in Germany, for that matter.

Italy will also be in focus today as it looks to sell up to €5bn worth of 2014 bonds, which given the recent drop in yields shouldn’t be too much of a problem.

In the UK concerns about the economy were magnified by yesterday’s disappointing Q4 GDP numbers which showed a contraction of 0.2%. Despite this some of yesterday’s CBI data did show some signs of recovery and it is to be hoped that today’s reported sales numbers for January show similar improvement. Unfortunately the expectations aren’t that high with expectations of a reading of -6, down from December’s reading of 9. This worse than expected economic performance has raised fears that the UK economy is heading for its first double dip recession since 1975, with fears that unemployment could well continue to rise.

Yesterday’s Fed meeting turned out to be slightly more dovish than the market had anticipated with policymakers pushing the low rate policy beyond market expectations, from mid 2013 into the end of 2014. This was a surprise given how positive some of the more recent economic data has been and suggests that the Fed is a little concerned at the durability of the US recovery. What was clear was that policymakers remain divided on when to raise rates with one dissenter, Richmond Fed Lacker who did not want a specific time frame inserted into the statement.

The Fed also set its long term inflation goal at 2%, as measured by in the price index for personal consumption expenditures or PCE. The downgrading of its growth forecast for 2012 to between 2.2% and 2.7% has also raised the possibility of a further round of asset purchases as early as the second quarter of this year.

Economic data out today includes December durable goods orders which are expected to show a 2% rise, slightly down from November’s 3.7% rise. There is a suggestion that this 2% figure could be on the low side given Boeing’s results yesterday which showed a sharp pick-up in aircraft orders in December.

Weekly jobless claims are expected to rise slightly to 370k after last weeks surprise drop to 352k.

EURUSD – even though we saw a sharp drop to 1.2930 yesterday the subsequent rally above this month’s highs at 1.3075/80 keeps the likelihood of a deeper move to 1.3250 very much on the cards. This level is also 38.2% retracement of the down move from the 1.4250/1.2610 down move.
We need to see a move back below the 1.2850/60 support area to reopen a move towards 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.

GBPUSD – the pound has continued its more buoyant tone yesterday despite a brief dip to 1.5530. It has as yet failed to get above the trend line resistance at 1.5670 from the August highs at 1.6620 which would then target the December highs around the 1.5770 area.
The 1.5500 area should continue to 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 – despite a number of attempts to get above the 0.8400 level the single currency has found a number of buyers on the dips towards the 0.8300/10 level.
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. A break of 0.8420 could well trigger a sharp move towards 0.8500.

USDJPY – the failure to get above the 78.30 December highs and 200 day MA yesterday has seen the US dollar pull back sharply. A move beyond these two resistance levels could well target a move towards the October 2011 highs at 79.55.
The key support remains around this month’s and the November lows at 76.50. Only a move and close below 76.50 opens up the all-time lows at 75.30.