Key News

• U.K. jobless claims unexpectedly jumped in January to the highest level since Tony Blair led the ruling Labour Party to power almost 13 years ago. (Bloomberg)
• Bank of England policy makers unanimously agreed to pause their 200 billion-pound ($313 billion) bond-purchase plan this month on optimism that inflation will return to their 2 percent target.
• Hungary will miss its budget-gap goal this year because revenue falls short of estimates and spending exceeds the plan. (Bloomberg)

Quotable

“The European sovereign debt crisis may net to slower European growth from an already-tepid starting point.  Although the European Council of government leaders has pledged "to take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole", that backstop is unlikely to immunize the euro-zone economies completely.  The crisis likely will tighten financial conditions and promote fiscal austerity, consisting of increased taxes and lower public sector demand.  And the crisis hits a still-tender euro area economy, which we have expected to advance just 1.2% in 2010.  Incoming data showing that growth rose just 0.1% in 4Q09 and a poor start to 1Q10 underscore the downside risks.”

                             Richard Berner

FX Trading – Euro bounce?  That is a big maybe!
We are looking for a little rebound in the euro, despite our longer term view it goes to low 1.20’s this year at least.  

“The euro gained ground, helped by news the day of reckoning for Greece has been postponed until the middle of March,” reported The Wall Street Journal today.  

In other words, if you can’t reach a decision or consensus, just cancel the meeting.  During this interim delay you can bet Eurozone bigwigs will be putting the screws to Greece; the buzzword will be “austerity.”  

Austerity seems the only way to muddle-through. Germany has signaled they aren’t jumping into this dangerous game of backstopping Greece debt, knowing it will only snowball.  So, that option seems off the table.  The big question is: Can Greece institute real reform?  One month will tell.  

German/Greek Bond spreads have eased a bit, but it’s nothing to write home about:

We know there are plenty more ticking time bombs the expose the European Monetary System (we notice Professor Mundell, the original theoretical architect of the Euro as a single currency, said Italy is the biggest problem for the euro.  You can find his interview posted on Bloomberg.com)

Euro Futures Daily: Euro looking “oversold”, trend is still down, but there are a lot of players along for the ride as open interest in the nearby futures is rising fast and at the highest level since June of 2008:

A bounce, so that Mr. Market can shake out some euro bears, would not be a surprise.  But keep in mind all that’s being considered equates to a rising potential of the breakup of the euro as a currency.  That probability is likely low, still; but it overwhelms any technical analysis considerations.

Traders may want to apply; long-term investors hold your ground is our take.