Greek deal rumour bought, fact sold the high in EURUSD of 1.3292 seen immediately after news of a 13th hour deal being struck on the 2nd Greek bail-out was as good as it got Tuesday.  Price action was testament to the notion that despite the lack of evidence of long euro positioning among major buy-side investors groups, there were enough interbank and other short term speculative longs in place and happy to book profits as soon as upward momentum faded (i.e., almost immediately).  In any event, enthusiasm to rebuild euro exposure seems tempered by scepticism that the deal has eliminated risk of an eventual default either from implementation failures or unrealistic assumptions about the baseline scenario under which Greek debt falls to 120.5% of GDP by 2020.  Concerns about the latter were elevated by the report to finance ministers leaked to the FT ahead of the deal announcement and which suggested that the austerity measures being imposed on Athens risked a recession so deep that Greece will not be able to climb out of its debt hole and could remain on official life-support for years to come. Closer to home, there are still some hurdles to overcome, notably the ratifications required by the Finnish, German and Dutch parliaments before month-end (thought we expect these to be largely formalities) and completion of the PSI component of the deal. Details of the PSI deal revealed on Tuesday include the need for 66% (2/3rds) voluntary participation in order for the collective action clauses (CACs), to be retrofitted into the Greek bonds, to be activated.  We continue to expect the PSI will only be completed by the activation of CAC's and a resulting CDS trigger and which could yet be a source of market volatility (credit and then FX) later next month.

Oil a source for new worry warts Fresh gains in oil prices since the weekend, exacerbated by reports that Iran was struggling to find new buyers for oil being spurned by existing customers, has more observers starting to fret about the growth-sapping connotations of latest the strength (in which respect Brent has a bigger impact on US CPI and thus US real incomes than WTI).   This may be one reason why commodity currencies most closely allied to oil prices, CAD, NOK and AUD, are failing to get much traction at present.  Comments from Norges bank governor Olsen suggesting he was closely monitoring the fact NOK was back to its highs, and independent momentum behind the sell-off in all things AUD (and with technically driven trading evidently significant) may also be relevant here.  Indeed, CAD was the least-bad performer of the three on Tuesday.  We remain on guard for an extension of the correlation breakdown between commodity FX and oil. Also, note that the strong relationship between OPEC oil revenue and EURUSD (latter supported by reserves recycling) has also broken down.

'Flash' Eurozone PMIs main data interest Wednesday To the extent immediate Greek default risks have been all but eliminated, Eurozone focus can now return to next week's LTRO announcement  (Feb 29) and then the possibility of additional ECB easing measures being announced on March 8th.  Important to market thinking on the latter is Wednesday's 'flash' EZ PMI data (France, Germany, and EZ). Modest improvements are expected (more so in manufacturing than services) in the pan-Eurozone measures.  If so, this may be seen as further mitigating chances of a rate cut as early as March, in turn offering some support to the EUR.  US existing home sales tops the US calendar (seen improving on December) while BoE minutes will be of some interest, largely the nature of the vote endorsing additional QE.

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