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The Greeks attempted to take advantage of the perceived improvement in the fiscal position by tapping the debt market for a 7-year issue, managing to sell sufficient to satisfy their April requirement but only achieving a 1.2 times cover ratio despite paying slightly above expectations. The gains seen in the Euro since Friday’s EC Summit agreement appear overdone now and with Eurozone economic recovery looking still very much 2-speed, the downside for the currency does look more attractive.

All the major currencies experienced positive data yesterday but it was the commodity currencies, and especially the Aussie $, that stole a march on the rest. The AUD has appreciated after an unprecedented appearance by the Reserve Bank Governor, Stevens on morning TV yesterday that has boosted speculation of a rate hike next week. Stevens was appealing directly to the public to pull back demand for housing, and warning of further rate hikes. You can’t get a clearer message than that… Accordingly, the odds of a 25bp April hike have lifted from 50% to 62%, up from less than 25% in the first days after the March hike. Once again we are in buy Aussie, wear diamonds territory as a widening of interest differentials and economic growth prospects make it difficult to argue against being long on the Australian Dollar.

An important comment was made by one of the MPC’s BoE members, Dale, yesterday evening. He said that inflation has responded less to the current slack in the UK economy than the Bank of England models suggest it should. This morning’s news that the UK’s 4th qtr final GDP figure has been revised higher, to +0.4% from +0.3% will only add weight to the argument for a sooner rather than later withdrawal of liquidity and a tightening in official rates. The much stronger than expected increase in the Nationwide housing price survey supports a return to growth. Sterling positive, especially versus the softer looking Euro. Sterling will also have been boosted slightly as the latest opinion poll from the Daily Express shows an extension of the Conservatives lead and to win in a narrow majority.

EUR/USD sits at 1.3470, slightly lower on the day. It started out so well for the euro. EUR/USD started around 1.3485 and rallied early, tripping stops through 1.3520 on way to session high 1.3539 with Asian buyers in the market for Euro. 1.35 is a key barrier for euro but as mentioned earlier I feel it may start to wind lower.

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