Thursday's euro risk-reversal. What a difference a day makes.  Wednesday had seen markets scrambling to price in an increased risk of either no deal for Greece or one that would be so drawn-out that the toxic atmosphere surrounding negotiations between the key protagonists in the Greek bail-out drama was at risk of persisting for many months with negative connotations for (global) risk sentiment. Thursday's news flow was much more encouraging.   First, from Germany, we learned that plans for a bridging loan for Greece to avoid a March 20th debt default were no longer on the table.  This was followed by news that the ECB had agreed to swap its GGB holdings for new bonds that would fall outside the grasp of Collective Action Clauses (CACs) likely to be inserted into existing Greek-law GGBs (and in doing so expected to make the PSI with limited hold-outs that much easier to achieve).  Alongside, various 'source' stories suggested that a complete bail-out deal was within reach at Monday's Eco Fin meeting, albeit not yet a given.  These reports have unleashed a rapid reversal of sentiment, EURUSD rallying from sub-1.30 to 1.3150 during the New York session.  Traditional high-beta currencies underperformed the euro rally, e.g. EURAUD trading 50 pips higher to above 1.22.  Stronger than expected US initial claims and housing starts worked with the grain.

Scope for more short covering ahead of Monday's Eco Fin meet given the serial experience of deadlines being missed and hopes dashed, we would judge that there is still ample scope for Thursday's short covering rally to extend should we get confirmation of a Greece deal on Monday.  Note that if this comes late in the day (and as past form would suggest is likely) it could be announced into a holiday-depleted New York market and where liquidity is likely to be at a premium.  This will presumably elevate upside risks to the euro on good news (and vice versa).   In the meantime, we suspect a reluctance to run short euro positions into Monday's meeting. We could see EUR gains extended ahead of a weekend that will almost inevitably be replete with news reports detailing the form and substance of the deal that will be debated and likely voted on by Eco Fin.

Norges Bank 'oil fund' comments help feed NOKSEK rally Interest in Scandinavian currencies continues to be concentrated on the NOKSEK cross.  Thursday's Risk bank rate cut and slightly better than expected Norway's Q4 GDP data fuelled an extension of the recent rally. This was then turbocharged by the failure of Norges Bank Governor Olsen to make any reference to currency strength in his annual address on the status of the Pension (Oil) Fund.  Olsen's suggestion that the ($600bn) Fund should disinvest from the European bond market in favour of Latin America and Asia failed to harm the euro but are a reminder of the scope for on-going portfolio inflows to these local markets.  With oil prices heading north and not (yet) to a level that damages global growth prospects, we suspect NOKSEK continues to track higher. A 1.18 handle looks achievable in coming days.

US and Canada CPI, UK retail sales, Eurozone BoP due US CPI holds limited interest Friday, but the Canada numbers may influence CAD and where consensus is for an unchanged 1.9% y/y core reading.  There will be interest in whether January's UK retail sales figures continues the recent run of upside data surprises (December strength is seen partially reversing).  Eurozone Balance of Payments data will also be of interest, allowing for a snapshot of cross border bond flows in the wake of the ECB's LTRO announcement.

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