EUR squeezed higher, but Greek issue set to drag on. USD/JPY pushing higher. EUR/USD has been squeezed higher back above 1.3300 this morning. The market is likely covering a few shorts given that the talks between the IMF/EU and ECB regarding the Greek support package are scheduled to be completed over the weekend. Given indications that the size of the loans on offer will have ballooned well beyond the EUR 45 bln EU/IMF package that was on offer just a few weeks ago there is some reason for short-term relief. However, there is still a long way to go before Greece's ails are healed. The first hurdle is that the German parliament will not debate the topic of Greek aid until next week implying at least a week's delay before aid can be endorsed. The second issue is that Greece still has to prove it can live within its means and this will be a slow process. Given that the already announced doses of austerity will ensure Greece remains in recession this year, there is no guarantee that Greece will be able to tolerate continued belt tightening over the next couple of years. Yet without austerity, further tranches of loans from the EU and from the IMF may not be forthcoming. This means that while IMF involvement implies there may be no imminent threat of default from Greece, this risk and that of a potential EMU exit still persists further down the line. Meanwhile EU officials remain heavily obliged to try and stem fears of a default or devaluation in Greece since these fears would be consistent with an increase in contagion amongst the EMU region. Yields on Greece, Portuguese and Spanish bonds have all fallen this morning in tune with the better tone of the EUR. That said the release of the Spanish unemployment rate at 20.1% is a sober reminder of the depth of the economic woes facing EMU's fourth largest economy.

The better tone of the EUR and stock indices this morning is allowing the JPY to soften. As a consequence, USD/JPY is pushing below the weekly cloud cap at 94.30 which could be a technical signal for material JPY weakness. As expected the BOJ policy meeting overnight did bring upward revisions to growth and inflation. However, these were tempered by the BoJ's indication that it will help lenders provide credit and by its forecast that deflation will only end in 2011. The BoJ's policy meeting coincided with weaker than expected labour market and industrial production data. The unemployment rate rose to 5% in Mar, the industrial production climbed at +0.3% m/m in March. Cable has pushed higher this morning largely on the back of the softer USD vs the EUR. Exit polls following last night's televised debate between the leaders of the three main political parties suggested that Cameron was the winner. Insofar as this may increase the possibility that the May 6 election may yet produce a majority government it is slightly encouraging for the pound. That said, once again the party leaders last night failed to give any details as to where most of the spending cuts needs to tackle the GBP 163 bln budget deficit will fall. The pound's fate in the coming 6 months broadly lies with the commitment shown by the new government towards tackling the budget deficit. Despite its early push higher this morning cable has failed to push to USD1.5400.

The AUD felt a pre-policy meeting boost this morning in the form of better than expected private sector credit data (+2.1% y/y). The mkt is forecasting a 25 bps rise in the RBA's cash rate on May 4.

The breakdown of the US Q1 GDP data this afternoon will be particularly key in determining how self-sustaining growth in the US economy is becoming. US Chicago PMI, Michigan confidence and Canadian Feb GDP are also due. Jane Foley Research Director +44 207 398 5024