The EURUSD continued to tumble as a unnamed source, said that German Chancellor Merkel stated there will be no decision on a bailout package for Greece by the end of the EU's two day summit in Brussels. The EURUSD traded below the 1.3425 key support (low May 2008) down to 1.3406, while the GBPUSD traded down to 1.4957 (at the time of writing). The public rift between Germany and EU officials on the Greek situation seems to be increasing daily, dimming markets optimism and weighting heavily on the EUR. There are growing rumors of short term bets against the EUR ahead of what many feel (including us) will be a disappointing close to Brussels. However, there are still EU officials actively searching for a solution, including the President of the EU Council Von Rompuy who was reported trying to actively arrange a pre-summit meeting on Greece to help pave the way for an aid package to be released in Brussels. And the FT reported on a potential bailout package mechanism for Greece, which IMF had made a substantial contribution. However, we remain highly skeptical of the EU tact and remain bearish on the EUR as long as sovereign risk concerns worries. In Switzerland yesterday, SNB Chairman Hildebrand provided a slightly mixed message. On one hand, he repeated that the SNB would fight excessive CHF appreciation and sounded battle ready when he said that they could buy very large quantities of foreign currency if required. And the other reiterated newly-appointed SNB Board Member Danthine comments, that consumers and corporations must get ready for market determined FX prices and higher rates. After the initial EURCHF knee-jerk reaction higher, the pair depreciated down to 1.4232 record low. A wealth of economic releases and events will keep traders busy today. The Norges Bank will release its policy decision today and expectations are mixed. The official Bloomberg expectations are for a hold, but we are leaning towards a 25bp hike. The central bank is still concerned about price pressures as inflation came in at 3.0% y/y in February (well above close to 2.5% operational target) and housing prices and wages increase have failed to abate. Given the recent pessimism around the NOK, a rate increase should provide reason for a short term rally. In the UK, today's Budget report will capture the markets' attention. While rating agencies have stated that they would wait a few months before reviewing the UK fiscal condition, today's budget should give traders a bias from which to trade the sterling. Ahead of today's release we believe the UK sovereign rate concerns should take a breather, as markets await elections results, CPI figures have backed off to 3.0% yesterday and credit agencies will review the UK conditions in the summer.
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