The EUR managed a meaningful recovery on the news that EU members are willing to stump up EUR30 bln in 3 year loans to Greece; the gains stopping short of the USD1.3700 level and falling back to EUR1.3600 at the start of Us hours.   The EU's agreement puts flesh on the bones of the support mechanism agreed in principle last month.  Insofar as Greece has a funding requirement of around EUR 32 bln for the rest of this year it effectively rules out a debt default in 2010.  Also, assuming that Greece does avail of the offer of EU funds it suggests that Greece can avoid paying the large premiums on its debt that the market has been demanding which means that Greece stands a greater chance of cutting its budget deficit this year.  Greece is still hoping that the very present of this offer from the EU means that it will be able to raise funds on the open market at reduced rates.   The Debt Office has announced a small bill issue (EUR1.2 bln) of 6 and 12 mth bills this week, this will be watched with interest by the market though it may be another month's before Greece goes to the market with a bond sale.  While the EU has bought Greece time to tackle its funding issues, this is not the end of Greece's problems.  Unless Greece can prove it can get to grips with budgetary reform than the funding crisis will tip over into next year.  It is also likely to tip over to some political disgruntlement in Germany.  If Greece does resort to a loan from the EU, Germany is likely to be the largest benefactor; a situation that Chancellor Merkel had been seeking to avoid and one that she may have to answer for at the May 9 German regional elections.  Also, the very existence of EU support arguably reduces the incentive for countries with budget difficulties to enact stringent austerity measures.  This moral hazard within EMU again points to the inadequate fiscal controls within the system.  The road ahead for the EUR thus remains rocky.  

The better tone of EUR/USD has allowed the pound to climb higher vs the USD.  Last week's firmer UK production data has soothed some of the economic worries associated with the UK economy which could allow for a faster decline in the budget deficit.  That said given its desire to see the deficit slashed, the market still wishes to see a Tory government at the helm after the general election and opinion polls (though not bookie's odds) are not convinced of this outcome.    If the Tory party manages to extent its lead in the opinion polls this week, the likelihood that cable has already printed the lows of the year will be enhanced.  

China recorded a much worse than expected trade deficit for Mar (-USD7.24 bln) throwing cold water on hopes that the PBOC may announce a revaluation on the USD peg  ahead of this month's World bank/IMF meetings.  That said, China has argued that the peg would remain until export markets recovered and export were up a respectable 24.3% y/y in March.  Imports surged 66% y/y on the back of demand for oil, raw materials and cars.  While stronger domestic demand in China is necessary in order to address global imbalances, given that these strong import data coincide with news of a 22.5% y/y rise in new loans, they suggest that the PBoC may take fresh action to cool lending which could impact risk appetite.  AUD, CAD and the NZD all lost ground vs the USD this morning.  

Canadian housing starts and Q1 business survey data are due this afternoon.  The US March monthly budget statement will be published.  
Jane Foley