Market focus shifts to the topic of Europes bailout fund

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With the ‘Greek deal’ having been confirmed and financial Armageddon averted (for the time being) the risk of debt contagion in the Eurozone spilling over to the peripheral countries seems to have subsided, for now. The market focus has shifted from the Greek deal to the topic of increasing Europe's bailout fund.

At the beginning of March a European Summit will be held to discuss options to increase the EFSF. I wouldn’t expect any quick decision though; the powers that be aren’t exactly known for their decisiveness. They touched on the subject at the G20 in Mexico however not much was accomplished apart from a slight sun tan.

Yesterday saw risk aversion as the prevailing trend with a lack of news being the main characteristic in the session. On the data front, we had US Pending Home Sales out of the US that rose 2% in January, posting the highest level since April 2010. What is on the cards for EUR/USD now? We’re trading in a range between 1.3360 and 1.3480 at present. I think with all the noise of Greece out the way we may see a strengthening in the EUR short term with the 1.35 level being tested. I think EUR/USD will come off however where is the top? It’s hard to pick at present however I’d expect a high of around 1.3570 then a retracement to follow. With Moody’s Investors Service saying a Greek default risk “remains high” the EUR may decline as low as $1.2590 against the dollar should it fail to breach a key resistance level a major French Bank has indicated. If you’re a seller of EUR levels look attractive to purchase USD and also GBP at the moment. Please contact to discuss placing market orders.

The Yen saw a rally against all of its major counterparts as stocks dropped and speculation the 11 percent surge in oil prices this month may weigh on economic recoveries boosted demand for safety. With GBP/JPY having gone from around the 1.16 level to the mid 1.28’s recently a pullback on GBP/JPY may be on the cards. If you’re a buyer of Yen levels are looking good to purchase at the moment.

On the data front the market is trading from event to event with the ECB’s LTRO results being the next event that will be in focus. It’s scheduled for tomorrow. I’d expect limited moves on the majors today however we have US durable goods orders and consumer confidence out of the US this afternoon that may provide some volatility. We’ve had some EU sentiment indicators out this morning with Economic and Industrial confidence out of the EMU coming in better than expected. Coupled with the LTRO results tomorrow we have CPI out of the EMU and also GDP out of the US in the afternoon so I’d expect large movements tomorrow perhaps setting a trend on the direction of EUR/USD as we’re not seeing a clear break in either direction at the moment.

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