With Japan on a long weekend, FX trading activity was somewhat limited. Over the weekend, US President Obama passed his healthcare legislation despite intense and vocal opposition. While the short term ramifications should be limited, adding around $1 trillion additional spending over the next decade to an already worrying debt load is not insignificant. In the not so distance future, we expect bond yields to react (head higher) causing a negative reaction in the USD. However, right now the focus is clearly on Greece and the EU. It's another important week for the EUR and Eurozone, as the scheduled Forum 2010 in Brussels (Thursday and Friday) could provide clarity on aid to Greece . Our central tenet is that the EU will do nothing, but use well placed verbal bailout grandstands to make short Eurozone more of a two-way bet. But by Monday morning when the smoke clears and headline fades, there will be no EU sponsored solution and a EUR still being sold on rallies. The latest round of comments hints that the European Council is working on bilateral loans with a clause for IMF involvement. Over the weekend divergence / inconsistent views on the viability of a Greece bailout continued to cloud any forecasts. German Chancellor Merkel has continued to insist the aid strategy for Greece might not be finished in time for the Council to endorse it. However, there core thinking is that no plan is actually necessary. Greek Prime Minister Papandreou stated that the Eurozone could be destabilized by forces who forget the political importance of the euro and he reiterated that Greece would not default on its debt obligations. Developments from Switzerland will be in focus this week, given the current elevated level of the CHF. Comments last week by newly-appointed SNB Board Member Danthine have emboldened EURCHF traders to continue to test the SNBs tolerance. Jean-Pierre Danthine said that consumers and businesses should be prepared for market set FX rates and higher borrowing cost, which seems to suggest that FX intervention is slowly coming to a close. This week, SNB Chairman Hildebrand and Vice-Chairman Jordan will be speaking and market will be focused on whether they repeat or even elaborate on last week comments. Today lacks any first tier data and we expect trading to remain subdued barring any random EU official comments on Greece.
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