Barring a bombshell from the Greek austerity press conference, we believe markets will stay relatively quiet ahead of the BoE, ECB and Fridays NFP. In this environment, we will be looking to play the daily ranges. Leaks of the announcement conference have spilled out, with media outlets citing Greek government sources, saying that the government has decided on $6.5 billion in extra austerity measures, decided to raise VAT by 2% to 21%, closing fiscal loopholes, and will be trimming salary bonuses by 30% in 2010. We are still doubtful over the long term effect austerity grandstanding will have on the EUR, especially after yesterday's stark admission from the Greek PM in regards to holes in the budget and tax collection process in shambles. In the near term, new austerity measures suggested today will likely significantly increase the markets focus on the March 5th meeting between German Chancellor Merkel and PM Papandreou. Standard & Poor's said that it was less pessimistic on Greece than financial markets seem to be, the exact statement sounded more politically driven then data supported. The EUR and risk appetite have been gaining on the expected news buts surprisingly equity markets headed in the other direction. There are rumors and IMM reports which suggest there are some still very big short GBP and EUR positions (although the short EUR trade lost most its steam in late February, despite recent heavy media coverage) and a small rally in risk could lead to decent short squeeze. In Australia, the real GDP grew 0.9% q/q and 2.7% y/y in Q4 vs. 0.9% q/q & 2.4% y/y exp. Growth was slightly higher than we or the market were expecting, yet the positive news failed to translate into a stronger AUD. We suspect, as stated yesterday, that while the domestic economic conditions remains robust, the AUD and monetary policy will be underpinned by external factors such as China and Greece. While the yield differential should provide AUD some near term support, as we move closer to Q2 and other G10 central banks accelerate their tightening cycle, we will be watching for heavy erosion in AUD's advantage. A wealth of data from the US should provide some range bound direction with ADP, ISM and Fed's Beige book.
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