• Eurogroup expects debt swap and second bailout to be concluded Monday
  • Parallel talk that the second bailout will be delayed until after Greek elections in April
  • Bridge loan would help Greece avoid default in march if bailout delayed
  • Empire State Manufacturing index jumps to 19.5 in February from 7.5 in December
  • US shows net long-term foreign asset buying of $17.9 bln in January, total inflows of $87.1 bln
  • US industrial production unchanged in January, December revised up to +1.0% from +0.4%
  • NAHB hombuilders’ sentiment survey rises to 4 year high of 29 in February from 25 in January
  • Fed’s Fisher: QE3 “a fantasy of Wall Street”; not going to happen
  • Spain lifts ban on short selling
  • FOMC minutes: A few members want further asset buying, more willing to wait to see if inflation falls and stays below 2%; Many saw greater-than-expected improvement in some indicators
  • Eurogroup: Substantial progress made on Greece; confident decisions to be made on Greece on Monday
  • S&P 500 falls 0.5% to 1343; Milan rises 0.4%
  • US 10-year note yields reverse losses after FOMC minutes less dovish than expected, end at 1.93%; Italian yields rise 16 bp to 5.75%
  • WTI rises $1.30 to $102.03; gold up $8 to $1729

EUR/USD fell sharply in early US trade, breaking below overnight lows of 1.3110 and eventually breaking support in the 1.3080 area. We fell as low as 1.3043 after the FOMC minutes were dovish, but not as dovish as we were led to believe by the dour outlook conveyed by Chairman Bernanke in his recent appearances .

Greece remains on the front-burner with fewer expecting a comprehensive bailout deal to be put in place in advance of the March 20 redemption of nearly EUR 15 bln in Greek bonds. The market is being led to believe that a bridge loan may be put in place until after the Greek elections as northern European leaders doubt the sincerity of Greek politicians to live up to the promises made in order to receive a second hit of bailout cash.

1.3025/30 is key technical support near-term while trailing buy stops from short-term bears sit not far above 1.3110. Medium-sized sell stops lie below 1.3120 with larger stops located in the 1.2990/95 area. A move back above 1.3110 may take the immediate downside pressure off of EUR/USD and send us back into range-trade mode.