Markets seem to be in a state of paralysis, unable to find a clear direction this Monday morning. The EURUSD was contained in a tight 100 pip range, while the USDJPY languished right below the Ichimoku daily could cover. Starting this week, the early part of March is filled with events which have the ability to truly shift market direction. This week is packed with macro G10 economic data (including the critical US NFP on Friday), central bank meetings, and speakers galore. Over the weekend, there were a slew of articles from the FT, WSJ and NYT suggesting that Germany was moving closer to solid plans for a Greek bailout. The NYT's reported that the German and French Governments might offer guarantees on newly minted debt to encourage investors to purchase the debt. The WSJ suggested that the German and French government might use state owned entities to buy Greek paper as a way of circumventing EU regulations. These articles where clearly risk and EUR positive but we would be cautious driving into a long risk position just yet. As we have witnessed in the past month, the sovereign credit trade is very fickle and highly reactive to political rhetoric and market interpretation. Ahead of the March 16th date, when the EU and IMF are expected to review Greeks fiscal strategy, we expect the market views to shift many times (and doubt an announcement of a pre-mature bailout package). Greek Economy Minister Katseli stated that EU inspectors, which went to Greece last week, said that unless supplementary austerity measures are introduced the goal of cutting the fiscal deficit by 4% of GDP this year would be unachievable. Despite the bailout speculation and solidarity quotes, there seems to be a growing fissure between the EU and Greek proposed austerity measures. Luxembourg PM Juncker highlighted this fact when he said that Greece must take further measures to decrease its fiscal deficit, saying that taxpayers in Germany, Belgium or Luxembourg aren't prepared to correct Greek fiscal policy mistakes. Right now, we would be content playing the ranges, rather than expecting a clear directional breakout. In Australia, a wealth of strong economic data has pushed up expectations of a 25bp hike to 4.00% by the RBA this week. There is still considerable uncertainty due to external factors such as Greece and China, which soft PMI figures today and renewed concerns over tightening, added to the uncertainly. However, even should the RBA hike rates and retail sales point to a continued recovery, we expect that any language hinting to a pause will hurt the AUD in the short term. In China, February NBS PMI came in significantly weaker than expected, down to 52 vs. 55.2. exp, the lowest print in a year, compared with January's 55.8. And on a final note anticipating the storm that will eventual hit the US, S&P's Managing Director of Sovereign Ratings Chambers said that the US' AAA sovereign rating is still hanging in there. Words which don't sound very encouraging to us.
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