The International Monetary Fund’s (IMF) has raised an additional £268 billion ($430 billion) for the pot meaning another set of support for the eurozone when it will be required.However, several other uncertainties persist to bother markets signifying that any rally could be short lived.

There is plenty of data and events this week including central bank decisions in the US, Japan and New Zealand.

In addition, US corporate earnings will stay under the spot light while bond auctions in the eurozone will also provide market drive.

It is doubtful that the Fed meeting tomorrow and Wednesday will incite any change in the currently low FX volatility atmosphere given that strategy settings will stay unchanged, with the bulk of FOMC members likely to look for the first alterations at the earliest in 2014.

The Fed as a result is unlikely to stir the Greenback out of its daze and if anything a fall in durable goods orders, little change in new home sales and a pull back in consumer confidence will play in support to Dollar bears over the coming week.

Even a relatively firm reading for Q1 GDP will be seen as backward looking given the slowing expected in Q2.

Over to Europe and the single European currency will have to compete with political proceedings as it absorbs the outcome of the initial round of the French presidential elections.

The reality is that the political course will carry on to a second round on 6 May which will act as a limit on the euro.

A variety of ‘flash’ purchasing managers indices (PMI) readings and economic opinion gauges will present some primary direction for the Euro but mostly stable to softer readings suggest little stimulation.

As a result euro/ US Dollar will largely remain within its recent range although news from Spain and Italy and their debt markets will have the potential to bring into play larger moves against the euro.

This week is likely to be a much calmer and quieter affair in comparison to last week which brought the ongoing Greek debt crisis to a close for the short term. Whether this will last remains to be seen as the struggling nation will have to renew future debt deadlines in addition to steering through an election in April.

Expect the euro to trade in limbo as traders decide on their view over how successful this latest deal will be.

Comments have been coming thick and fast from finance minsters around the world with statements ranging from ultra positive to cautious.

The G20 met in Mexico over the weekend with the topic of Euro contagion at the top of the agenda.

The eurozone countries pledged to reassess the strength of their bailout fund in March, which would clear the way for other G20 countries to contribute via the International Monetary Fund.

The G20 said “This will provide an essential input in our ongoing consideration to mobilise resources to the IMF”.

Data this week comes mainly from the States with US durable goods orders on Tuesday, GDP on Wednesday and jobless claims on Thursday.

The US government will be expecting positive figures across the board as they continue to spend their way out of recession to attract growth.

German Chancellor Angela Merkel told Davos-”We need a big rethink”.Germany’s Chancellor Angela Merkel has told the World Economic Forum that a “big rethink” is needed in the eurozone within the global economy.

“Structural reforms that lead to more jobs are essential,” she told delegates at the Swiss resort of Davos. “Do we dare to be more European?”

The eurozone is still struggling with a sovereign debt crisis and is trying to agree reform to its political system.

But many want Germany and other nations to boost the size of their rescue fund.

The International Monetary Fund (IMF) wants the eurozone to inject more cash into its rescue fund.

The IMF wants the sum available for bailouts to grow beyond 500bn euros (£416 billion) to ensure talks between private creditors and Greece do not grind to a halt.

The situation is urgent according to the IMF, which recently predicted that the economic growth rate in Europe could halve this year from an earlier estimate of 3.3% if the eurozone crisis remains unsolved.
Lessons learnt

Mrs Merkel disagrees with Ms Lagarde about what is needed.

“We have said right from the start that we want to stand up for the euro, but what we don’t want is a situation where we are forced to promise something that we will not be able to fulfil,” she said.

Mrs Merkel said that the austerity reforms being enacted – currently being felt from the Irish Republic to Italy – had to be balanced with reforms of how Europe is governed.

Mrs Merkel also acknowledged “tensions” between countries that have adopted the euro and those that have not inside the European Union (EU).

Given that the main euro paymasters Germany- and the IMF disagree on how to solve the euro credit crunch- there is only one way this story is going to go.

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Eurozone leaders once again put off decisive action to the region dent problems leaving the markets to trade and rumours and comments. The crisis, which threatens to throw the world into a new recession, has been the only subject of note for traders and investors as the markets remain volatile, but over a small range.

The summit, between 17 euro nations, led to the agreement that the bailout fund would be leveraged up to €1 trillion, half the €2 trillion the markets have been looking for.

This agreement is only in words though and no official number or method for achieving it has been announced.

The disagreements to derive over exactly how these funds will be raised and also the size of the haircut that banks and institutions will have to take on any Greek bonds they own.

The IMF was said to favour a 70% cut while the owners of the bonds are struggling to get above 40%.

Further chaos added came from Italy where politicians came to blows as they discussed austerity cuts for the country.

Rumours that Prime Minster Silvio Berlusconi will resign by the end of the year added fuel to the fire and the worries that Italy could be heading the way of Greece has grown severely over the last few weeks.

French President Nicolas Sarkozy and German Chancellor Angela Merkel have been meeting with banks in order to thrash out details of haircuts and asking the banks to raise funds.

France’s 4 largest banks are expected to raise €8.8bn with 13 German banks bring €5.2bn.

Also, Spain’s 5 largest banks will raise €26bn leaving 5 Italian lenders needing to produce €14.7bn.

This plus other banks across the Eurozone will raise a total of €106bn, with Britain’s lenders not raising anything to the total.

This capital will be used as reserves to cover the losses from any write-downs on sovereign debt held with each institution.

Until these agreements are signed, sealed and delivered with the fine print read through, we are no closer to being out of the woods to last week.

The G20 finance ministers start a two day meeting today and the main point on the agenda is to tackle Europe’s debt woes.  The Euro has pushed higher on the expectation that the meeting will help boost the IMF’s lending resources.

Yesterday the euro slipped back into risk off mode as equities slumped and banks again came under pressure- today the G20 has turned the mood, hopefully they can back it up with solutions.

By the end of this month a plan is set to be announced on Europe and the market is pricing in a credible and concrete plan currently, however the proof will be in the pudding.

The Euro initially came under pressure as S&P again downgraded Spain by one notch to AA- and placed them on negative outlook.

The EUR/USD slipped 40 pips on this news but then steadied and turned the loss to a gain as the expectation of G20 help for the Eurozone lifted the single currency.

High yielding and commodity currencies are benefitting form the expected progress on Europe- the AUD and NZD in particular have posted weekly gains.

Today apart from the G20 meeting there is not too much on the agenda.

Later today we have US retail sales and the market will be looking for a number in line or hopefully better than expected.

Last week the non-farm number was not as bad as expected and this led to optimism in the markets and we are looking for a similar outcome today.

The probability of further ECB interest rate rises in the near term increased yesterday as the eurozone recorded another slight increase in the core cost of living index.
Given the hawkish tones (although they were slightly less so at the last meeting) of the ECB, one would expect the euro to respond positively to the prospect of higher rates, but sentiment remains weak in light of a continuing story regarding the head of the IMF, Dominique Strauss-Kahn, and its potential impact on the ongoing sovereign debt issues.

Mr Strauss-Kahn was refused bail and will remain in custody until his next hearing on the 20th May.

In his absence EU financial ministers did manage to approve the £65 Billion bail out of Portugal, the IMF providing around one third of the funds (the other two-thirds are from the 2 bail-out vehicles set up by the EU).

Over in the US President Obama again called for Congress to approve increasing the debt ceiling to avoid what he described as a potential “devastating economic and financial crisis”.

Republicans are aiming for guarantees on deficit reduction before they agree to a hike in the debt ceiling and the inertia is beginning to worry the markets, given the estimated day that the government runs out of money is the 2nd of August.

The Federal Reserve minutes from their last meeting are due today at 6pm, as ever the markets will be looking for comments on the economic recovery (especially on housing and the labour market) and anything regarding the end of QE2 and the Fed’s strategy once the easing has ended.

Currency conflicts at the G20 gathering in Nanjing continue to undermine markets with the obvious divisions between member nations on the way forward causing the very moves that participants are looking to correct. The US, through Tim Geithner, maintain their attack on the Chinese policy of not allowing its currency to float freely, arguing that to adopt such a move would enable the Yuan to take on a much more high profile global role.

He adds that becoming a constituent of the IMF’s currency basket would be the clear evolution.

The European delegates remain wary of further Dollar strength with the French President, M. Sarkozy summing up the concern when he argued against the Euro, or any other currency, usurping the Greenback role as the global reserve medium.

He added that recent Euro strength versus the Dollar was unjustified.

Overnight, we saw the stronger Dollar from the last few days give up some of its gains on comments from Federal Reserve member Bullard clarifying his reported remarks from the day before.

He said that there is no consensus on the FOMC about ending QE2 early, and that this is unlikely to take place.

He also said that the Federal Reserve would be able to tighten policy by not necessarily pushing up official rates, but by starting to sell back assets adding that this cycle of tightening would be far more difficult to manage.

The weaker Dollar / stronger Euro scenario was further enhanced by yet more comments from ECB Board members, Bini-Smaghi and Stark who both cemented in the probability of a rise in the official Euro interest rate at next week’s regular meeting.

The former talked of rates being returned to normal levels in a “gradual way” whilst Stark pointed out the fact that policy rates at present levels were exceptionally low.

The European Central Bank (ECB) has expressed worries that the process of the Irish Republic’s £72 billion bail out package could affect its ability to provide further support to eurozone members.
The bank said that flaws in the Irish bail-out legislation could compromise its ability to provide collateral for future funding.

It said it had concerns over the quality of collateral to cover loans.

On Friday, credit rating agency Moody’s cut sharply the Republic’s debt rating.

“The ECB has serious concerns that the draft law is insufficiently legally certain on a number of critical issues for the euro system,” the bank said in a recent paper.

It questioned the powers granted to the Irish Finance Minister Brian Lenihan by the draft law “interfere significantly” with the rights of shareholders and creditors of financial institutions.

“Furthermore, the ECB suggests further clarification that the rights of the central bank and the ECB, as creditors of any relevant institution, will not be affected,” the bank said.

It added that the paper, was a response to a request from Mr Lenihan for its opinion on draft legislation granting him extra powers to ensure the Republic’s financial stability.

It said it “welcomed” the request and understood “the need for an accelerated legislative procedure”, but said it would have “appreciated being consulted at an earlier stage”.

Last week, the International Monetary Fund (IMF) approved a three-year loan of 22.5bn euros for the Republic.

The funds form the first part of the IMF’s contribution to the EU and IMF rescue package.

Concerns were growing over the weekend that Europe’s second largest economy could also be on the hit list for bond market short sellers according to the London Stock Exchange chief executive Xavier Rolet.The chief stated that “It won’t be long before bond investors turn to France after they have finished with Portugal and Spain”.

The chief then went on to say France has a much higher debt than people realise and markets could lose confidence in the euro completely if it becomes evident France cannot obey to Eurozone fiscal rules.

This latest revelation comes as head of the IMF Dominique Strauss-Khan places increasing pressure on the Eurozone to raise the size of its €440 billion bailout fund.

This is likely to be met with further domestic unrest in Germany as tax payers are becoming increasingly frustrated at paying out for Irish and Greek bailouts.

With regards to Ireland, their government will tomorrow vote on the emergency budget that is required to gain access to the emergency funding.

If the French were to become ensnared then that would be game, set and match for the euro as we know it.

On the other side of the pond- the greenback has regained some stability from a renewed focus on U.S quantitative easing.

The US Dollar moved higher off a three week low against the yen and two week lows against the euro- despite disappointing employment statistics on Friday.

Instead of an expected gain of 140,000, the payrolls only rose by 39,000, in addition the unemployment rate rose to 9.8% from 9.6%.

Fed Chairman Bernanke’s TV interview was the focus over the weekend as he defended Fed’s QE program and said that Fed’s “not printing money” as “the amount of currency in circulation is not changing”.

The money supply is not changing in any significant way.” And he hit back on criticisms and said fear of inflation is “way overstated”.

Bernanke said the program is for lowering interest rates by buying treasuries to stimulate the economy to grow faster.

The dollar now sits at 1.57 against the pound and 1.3310 against the euro.

Yesterday saw the first dose of Christmas cheer for the bulls, as worldwide growth figures painted a broadly positive picture of the global economic recovery.India and China who were expected to perform strongly did not disappoint.

The US also announced a smaller than forecast drop after last months large increase, which was interpreted as a bullish signal by investors and risk was placed back on the table.

Stock markets across the world rose strongly and the Dollar weakened after its strong showing earlier in the week against the Euro and Sterling.

The scale of the Fed’s lending to financial institutions at the height of the crisis was also revealed yesterday, the only real surprise was the scale of the lending to European institutions including Barclays and RBS.

Before anyone gets carried away, we need to look towards tomorrow’s non-farm payrolls to continue the positive news, since pre Greece we found ourselves in a similar situation of timid bullishness, and we all know how that worked out!

Sticking with PMI figures, the strongman of Europe is now unbelievably…. the U.K. according to newspaper reports yesterday.

The data showed manufacturing activity at its highest level since 1994 and helped underpin a modest Sterling rally against the Dollar, moving back towards 1.56 from the lows of the previous day.

The Nationwide house price survey has in line with expectations, and given recent dire figures on the health of the UK housing market, was interpreted rather positively.

With no Bank on England Meeting today, the markets attention will be focused on Zurich, where England’s chances on hosting the 2018 world cup are currently being decided.

Being very a biased bunch, Wise Money can only hope today’s result turns out to be a resounding victory, and as long as our Cricketers down under do not suffer a customary collapse tonight, this week may be shaping up to be a pretty good one for Britain economically as well as emotionally.