Voters in France and Greece joined their counterparts in Ireland, Portugal, Spain, Italy and the Netherlands in forcing out leaders or ruling parties over the past two years. Changes in leadership across the eurozone have generally been Euro negative in the immediate aftermath as the markets digest the change in leadership and the euro is pushing towards the key level of 1.30 against the Dollar in early trading this morning.

The French public elected Francois Hollande, the socialist candidate, and a key pledge was to renegotiate the ‘fiscal pact’ agreed by members of the single currency.

The money markets remain nervous of the possibility of renegotiation mostly because of the uncertainty it would create and how it would affect the strong ties forged between Mr Hollande’s predecessor and the German Chancellor.

Also adding to negative euro sentiment is the non-result from the Greek election.

No party secured enough of the vote to form a government.

New Democracy, who polled the most votes of all the parties has not been able to persuade other to form a coalition so it now falls to second place – the radical Syriza party – to try to form a government.

As many in the market have worried, an anti-austerity party in a position of power brings a Greek exit from the euro that much closer.

Away from Europe, the Bank of England meets on Thursday to decide interest rates and the asset purchase scheme. No change is expected to either.

We also have the GDP estimate on Thursday expected to show a return to growth, and also the PPI figures on Friday.

There is little important economic data from the US this week but in Australia we have the budget and employment data out later in the week and given the ACB cut rates last month may turn out to be softer than expected.

Fears in Europe have escalated a notch amid growing concern on both economic data and political cohesion.  This morning S&P have taken a negative rating action on 16 Spanish banks, in addition press reports out of Germany suggest that a Merkel-Hollande alliance will not be as straightforward as the Merkozy alliance.

At the moment the euro is holding up fairly well as the market has been selling the US Dollar on sentiment that the Federal Reserve will ease further, however the underlying negative tone will be a concern to the markets.

Later this week the ECB are expected to leave interest rates on hold, however Mario Draghi will face tough questions in the press conference on the strategy for Europe amid growing concerns for a growth compact.

USA jobs data will be a main data point to watch this week.

Friday’s non-farm payroll report will form important sentiment for the pace of the US recovery after last month’s disappointing number which followed a good run of jobs data.

The number is expected to be a good number and the feedback on this data will be a key factor for the Feds future strategy-a bad number and we can expect more easing.

In the UK, attention will focus on the PMI data tomorrow and Thursday which will offer a snippet of growth feedback following last week’s preliminary Q1 GDP which came in negative.

Again if data proves negative it could trip the Bank of England to pump more QE through the system- possibly at the May MPC meeting.

Like the rain in the UK over the last few weeks it never rains, but it pours. The weather in Spain may be better, but economically the situation continues to be dire.

Overnight S&P the ratings agency, cut the Spanish credit rating to BBB+ from a reflecting the increased fear that the government will need to provide further fiscal support to the ailing banking sector.

To compound matters, the Spanish unemployment number came in higher than expected; a staggering 24.4% of the population is now without a job.

The figure is higher amongst younger people, with almost half looking for work.

As labour market laws are overhauled unemployment is likely to get worse before it gets better, meaning there will be further pressure on the Spanish credit rating and hence the rate at which Spain can borrow in the market moving forward.

Amazingly, Sterling shrugged off the negative GDP figure on Wednesday and now trades slightly higher against the Euro and Dollar than before the announcement.

This is probably due to the worse than expected European news more than Sterling gaining, but the Pound is likely to come under pressure at some point over the coming week.

The US Dollar remains subdued after the Fed statement earlier in the week neither confirmed nor ruled out further easing.

The uncertain stance has left the Dollar slightly rudderless given that we are also fairly risk neutral across the markets as a whole (but on the negative side of neutral).

That should come to an end when the US GDP number comes out this afternoon, with expectations of an annualised rate of 2.5%.

The European Central Bank usually meets on the first Thursday of each month but the Easter weekend coming up means today is the day. Expectations are for the ECB to leave rates on hold and no change to the non standard liquidity measures.

The upcoming holiday will also see some liquidation of risk positions so expect static or slight declines in equity markets and riskier currencies.

The Dollar is benefitting not only from the reduction in risk sentiment but also last nights FED minutes.

The tone was one of cautious optimism over the US economy and the markets interpreted that as a reduction in probability of another round of quantitative easing which is USD positive.

UK services PMI made it three in a row better-than-forecast data releases, following on from manufacturing and construction earlier in the week.

The data paints the UK economy in a positive light, but it is important no to get carried away.

The OECD thinks the UK has already re-entered a double dip recession and we need to wait for the Q1 GDP figure later this month before we get a clear picture of the UK economy.

Sterling certainly likes the data, rising against both the euro and Dollar in recent trade.

Markets will be winding down over the coming days, but the remaining things to watch for are the Bank of England meeting tomorrow and the Non-farm payrolls on Friday.

Europe’s 17 eurozonegovernments have agreed to deliver €500 billion in a new bailout funds today in the hope of erecting a firewall big enough to contain the sovereign debt crisis and encourage the International Monetary Fund members to commit a similar sum to emergency reserves.But the eurozone finance ministers, meeting in Copenhagen amid calls to erect the “mother of all firewalls”, ditched explicit earlier proposals to keep a further €240 billion (£200billion) in reserve for the next two years.

The deal conformed to German prescriptions for a minimalist bailout fund, a recipe that the European commission in advance described as inadequate to the challenges confronting the euro.

Ministers nevertheless endeavoured to impress the bond markets, the Americans, and the Chinese, trumpeting the agreement as worth “more than a trillion dollars” in the hope that this will press the big IMF donors into doubling the monetary fund’s reserves to a similar figure next month.

“We are now in a strong position for discussion on the IMF in April. It is a good signal,” said the French finance minister, Francois Baroin.

“All together the euro area is mobilising an overall firewall of approximately €800 bn, more than $1tn,” said a Eurogroup statement.

But that figure included €100 billion in bilateral loans to Greece from EU countries in 2010 as well as €200 billion to Ireland, Portugal and Greece from the temporary eurozone bailout fund which closes next year, although those three programmes will run their course until 2015.

The Copenhagen meeting degenerated into acrimony and some chaos when the Austrian finance minister, Maria Fekter, upstaged the eurozone leaders by first announcing an €800 billion firewall.

Jena-Claude Juncker, the veteran Luxembourg prime minister who has been chairing the eurogroup for eight years and whose term expires in June, threw a hissy fit and cancelled a media conference at which he was to unveil the decisions.

The new money comes in the form of the European Stability Mechanism (ESM), the permanent eurozone bailout kitty and embryonic European Monetary Fund which starts in July. The ESM’s launch has already been brought forward and ministers on Friday also agreed to speed up the process of paid-in capital to get the fund fully operational within two years.

Its lending capacity was capped at €500 billion, as has long been planned.

A draft statement yesterday said that the spare €240 billion would be held in reserve for emergency use, but was dropped today.

The permanent fund’s lending capacity hinges on €80 billion being paid in five instalments till 2014 in order to retain a triple-A credit rating, meaning that it could be two years before the fund is operating fully as foreseen.

But the parallel running of the current temporary and the future permanent funds will ensure a lending capacity of €500 billion, the ministers said.

EU officials are desperately trying to convince private holders of Greek bonds to accept a crucial debt swap deal ahead of today’s deadline. In order for Greece to receive a second bailout it will need at least two thirds of bondholders to take a 53.5% cut in the value of their holdings and the deal is considered essential in Greece’s attempt to avoid a default.

According to the Institute of Finance yesterday just under 40% of the bond holders had agreed to the new deal leading to a nervy countdown at 8pm GMT deadline later today.

If the total number of bond holders reach the required 66% (approx €150bn) agree to the swap, the government can force the other bond holders to take the haircut too.

Remarkably the euro remains relatively resilient in the face a Greek default up slightly against the Greenback reaching 1.3217.

Back to the UK and Quantitative Easing has knocked £90 billion off pension funds according to National Association of Pension Funds (NAPF).

The news came from two recent studies and blamed lower bond yields and consequently pushing final salary pensions further into the red.

Joanne Segars, Head of the NAPF, said: “Businesses running final-salary pensions are being clouted by QE.  Deficits that were already big now look even bigger because of its artificial distortions.

“Firms are legally obliged to fill the deficits, and that diverts money away from jobs and investment, and will lead to further closures of final salary pensions in the private sector,” she explained.

Finally, today we have interest rate decisions in the UK and Europe both expecting no change and consequently little FX impact.

Reduced revisions to ECB growth forecasts will however, could underpin a more negative tone in this afternoons press conference.

Greece has a potentially difficult week ahead as a group of private investors consider the terms and conditions of an arrangement that’s intend to cut €107 billion from the Greek’s €340 billion debt burden.The whole deal hinges on whether the creditors are willing to take a hit of 75% on their holdings in return for a combination of long term Greek bonds and debt issued from the bailout fund.

Due to terms of the second bailout if over a third of the bond holders reject the deal the overall bailout could collapse as per terms put through Government last week.

The reaction from the rest of Europe specifically Austria is now sceptical about the overall viability of the package.

Chancellor Werner Faymann said yesterday that the second bailout is not the end of the matter.

“I would not trust anyone who says that for Greece is enough,” Faymann told Austrian media.

“For Greece it depends on whether they can stick to these measures over several elections.”

Greece will begin voting at the end of this month with a general election in the offing.

In the interim, Greek officials are required to gain the backing of a minimum of 2/3 of its private holders by Friday to employ the debt swap and comply with the requirement terms of its second bailout.

Worst case scenario Greece could run out of funds in less than a fortnight and could prompt an unruly and possibly catastrophic default.

As you would expect the news is weighing heavily on the euro right now and has seen EUR/USD slip to 1.3191 from 1.3440 at the same point last week and Sterling is approaching the key psychological figure of 1.20 at 1.1981 against the single European currency.

Money markets will keep a close eye on developments in the med and this will provide the impetus for sentiment this week.

Elsewhere the week is largely dominated by Central Bank interest rate decisions with announcements in Australia, New Zealand UK, Europe and Canada all expecting no change in the overall rate.

Any variance from these expected figures, with any turbulence from Greece and Friday afternoons US Non-farm payroll data could lead to a volatile week for the markets.

Sentiment remains the primary driver of the euro as the single currency sold off sharply in afternoon trading yesterday after Eurozone members decided to delay more than half of the €130bn Greek bail-out funds.  A decision that was supposed to finally put to bed the Greek issue, at least for a couple of months, has managed to calm volatile markets for less than two weeks.

Thirty eight different measures need to be implemented by the Greek government before the remaining €71.5bn is handed over.

This may be as early as next week. But slicing the payment in two allows hardliners in the Netherlands and Germany a foot in the door and the potential for further delays.

It is this uncertainty which is hurting euro sentiment and pushing the Sterling pair back towards the 1.20 level.

Sterling remains stuck in recent trading ranges and as expected this week’s construction and manufacturing PMIs have not moved the Pound at all.

The manufacturing number was lower than expected and was cancelled out by better than expected construction figure this morning.

Next week is huge for big ticket data with the ECB and Bank of England rate decisions and the US non-farm payrolls the highlights.

Encouraging economic developments provided wise money markets with an appetite for risk again. Despite weaker than expected US durable goods orders, a rise in US consumer confidence to its highest since February last year provided stock markets and risk assets with an overall a boost.

It was a similar story in Europe as Italy held a successful auction of 10-year debt at a lower than expected cost at the same time as Portugal approved a third review of its bailout agenda.

However, there was some negative news, with the ECB momentarily deferring the eligibility of Greek bonds as security for its backing and Eire calling a referendum on the European fiscal compact.

Nevertheless, expectations of a strong take up at today’s ECB second 3-year Long term refinancing operation (LTRO) should keep markets on the straight and narrow for the rest of this week.

As for the US Dollar and given the upbeat equity market mood overnight it is no shock that the Greenback was on the slide as the euro appears determined before today’s 3-year LTRO by the ECB.

Bernanke’s Semi-Annual Monetary Policy Report later today will provide the Dollar some bearing but no major surprises are expected.

The euro will continue to rally against the US Dollar if we are correct about a strong euro 600-700 billion take up at the LTRO but it will interesting to see if the 1.35 level can be breached.

The euro currency is enjoying a healthy bounce after the completion earlier in the week of a further Greek bailout to cover March debt obligations and through positive German data. Data from Germany showed that GDP had shrunk in Q4 by 0.2%, however strength in recent ZEW and IFO surveys suggest that the economy will escape falling into recession.

The euro was also helped by good news from over the pond as weekly US jobless claims came in unchanged at 351k and this level remains the lowest since 2008. This number has helped to boost the expectation that the approaching Non Farm Payrolls on Friday 9 March will better than market expectations.

Recently US data has started to show signs of improvement as the powerhouse that is the US economy looks as though it is slowly clawing back to growth.

For the markets this improves the appetite for risk and currently this is USD negative.

We have seen EUR/USD especially push higher and test 1.34- the highest level since December, GBP/USD has also edged higher but the pound remains a little subdued.

Wednesday’s MPC minutes helped to put a dampener on the Pound as expectations rose for further QE in 2012- probably in May.

With inflation falling and economic growth struggling then QE remains very much on the table with a cocktail of low interest rates to remain.

The Pound has fallen on the back of this market feedback and is struggling to gain momentum even in a sentiment which has turned risk on.