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The focus today is very much on the growth signals coming out of the currency bloc. After all, now that Greece has been stabilised post the second bailout deal, if stocks are going to continue to extend gains then they need to see growth signals continue their positive run.

That's where we are becoming a little unstuck. The Eurozone PMI data for February plunged back into contraction territory for February. The composite index fell to 49.7 from 50.4 last, and was led lower by the services sector, which was considered the strongest part of the Eurozone's economy. The manufacturing reading actually increased but remains in contraction territory at 49.0. Interestingly, it wasn't only the peripheral economies that weighed on the pan European index; Germany also saw its readings come off their recent highs.

France has been an anomaly in Europe: its economy seems fairly immune to the problems in Greece and actually managed to expand in the fourth quarter of last year when not even export-powerhouse Germany managed to do the same. Today the focus was all on the February PMI readings from Paris, which didn't disappoint and they moved into expansion territory for the manufacturing and services sectors, suggesting that the good run in French growth may be extended into the first quarter of this year.

The European data followed news out of China that showed the HSBC reading of manufacturing PMI remained in contraction territory this month. Thus, although we continue to believe that growth bottomed in the fourth quarter of last year, today's PMI data is another reminder that the global economy is on a bumpy road to recovery and we may have just hit another dip in that road only two months in.

Greece is still a major concern, however, a high oil price and Iranian tensions are also creeping up as a threat to the global economy. Brent crude oil hit fresh highs yesterday and is currently above $121BBL. This is the level that could stall the recovery in the global economy that has barely got started.

Oil prices have climbed steadily since the start of this month even though there is a lot of expectation that Iran will back down after halting supplies of crude to France and the UK earlier this week. However, Tehran's nuclear ambitions and its oil reserves are inextricably linked. It failed to comply with nuclear inspectors who left yesterday, and there is still pressure from Israel to bomb Iran's nuclear production facilities. If this happened then it would no doubt lead to some sort of blockade of the Straits of Hormuz, which the US has said this would be an act of war, and would no doubt lead to some retaliation from the West. So as you can see the Iranian issue could spiral out of control and become the next major threat to global growth after Greece.

That doesn't mean that Athens has fallen off the radar. A sizable chunk of opinion still believes that Greece will need more bailouts/ default/ leave the Eurozone at some stage regardless of the latest bailout and PSI deal struck earlier this week. Added to that to get the second bailout Greece has 9 days to enact a whole raft of reforms from sacking under-performing tax collectors to preparing state assets for sale. This is not a joke, and in the coming days there may be concern that the money won't be released if Greece doesn't do this (although the chance of it doing so is incredibly slim).

On the technical front, the big news of the European session is that USDJPY has continued to extend gains above 80.00. Momentum is building, and it is currently testing the 80.25 August intervention high. Earlier it hit 80.30 - a 7-month high. The dollar is up across the board today as confidence drains form the market. EURUSD is stuck between its 50-day sma at 1.3030 and its 100-day sma 1.33. AUDUSD is also coming under pressure but remains fairly well supported above 1.0610.

Elsewhere, the pound has weakened sharply today after the Bank of England minutes were released showing that there was a split at the last meeting with 7 members voting for GBP50bn of further asset purchases, and two voting for GBP75bn. The majority won out, and those who voted for GBP50bn were concerned that anything larger would send out the wrong message that the economy is weaker than it actually is. So, while the Bank acknowledged that growth could be stronger than expected in the short-term, and inflation may be above the targets projected in the last Inflation Report, the BOE is still in wait and see mode and any deterioration in growth will be met with a wall of liquidity.

GBPUSD fell sharply after the minutes as the markets jumped on the back of two very dovish members in the Committee; however it found good support at 1.5695 - its 100-day sma. Overall, markets are paring back their risky bets and indecision abounds. This is likely to mean ranges for the time being. In GBPUSD 1.57 - 1.59 are key support and resistance levels.

We will be waiting for the US markets to open later to see if the Dow has another stab at 13,000 but with rising oil prices and strains in Greece this could mark the high for now.

Best Regards,

Kathleen Brooks| Research Director UK EMEA |

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