The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3595 level and was capped around the $1.3800 figure. The common currency continues to trade on rumours and news headlines regarding a European bailout plan for Greece's fiscal deficit. German Chancellor Merkel reported Greece is part of the European Union and will not be left on its own while U.K. Chancellor of the Exchequer Darling said a Greek resolution is in all our interests. The lack of an explicit bailout package for Greece at this time indicates some likely political pressure against a deal. EU leaders promised to take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole. European Central Bank President Trichet said one can count on our permanent alertness. The EU seems to be resisting the possibility of Greece getting a bailout from the International Monetary Fund. Aside from Greece's problems, there is a concern that there could be contagion with the credit crisis spreading to other countries that have their own credit problems, including Spain, Ireland, and Portugal. The euro will likely continue to suffer from downward pressure as long as there is no overt financial package to help Greece refinance its mountain of debt. The European Union may be stalling on such an announcement as it assesses the likelihood of other eurozone countries requiring fiscal assistance. The report of solidarity has so far not been enough to counter euro bears who want to see an actual deal announced. ECB official member Nowotny warned contagion would be worse than the negatives of helping while EU's Juncker reported the Masstricht Treaty's no bailout clause will be respected and said the EU's assistance will avoid moral hazard. Interestingly, Greek Prime Minister Papandreou said his country is not seeking outside assistance to resolve its fiscal crisis. ECB member Weber warned the German economy could shrink in Q1 and added current interest rates are appropriate. Weber also added the ECB will phase out some liquidity programs and said the next likely step is a return to auctions for long-term refis, as opposed to full allotments. In U.S. news, data released saw weekly initial jobless claims narrow to +440,000 while continuing jobless claims fell to 4.538 million. Tomorrow's data will include January retail sales, December business inventories, and February University of Michigan consumer sentiment. The Federal Reserve is said to be in discussions with money market mutual funds on agreements to drain as much as US$ 1 trillion from the financial system. The industry is about US$ 3.2 billion in size compared with around US$ 100 billion of capacity held by the eighteen primary dealers that trade directly with the Fed. Fed Chairman Bernanke's prepared testimony yesterday made it clear that the Fed will be unwinding some programs but averted an explicit timetable. On the political front, Senate Democrats unveiled a new US$ 85 billion jobs stimulus plan. Euro bids are cited around the US$ 1.3530 level.
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