• EU’s Rehn: IIF and Greece close to a bond-swap deal (no they’re not!); Collective action clauses an option for Greek debt (background here.)
  • Canadian retail sales rise 0.3% in November
  • S&P: Greece will likely qualify as a default
  • Belgian business sentiment rises to -9.5 in January from -10.6 in December
  • ECB’s Gonzalez-Paramo: Deep euro zone recession not likely: rates can go as high or low as needed; no floor on ECB rates; impact of LTRO might be similar to QE
  • IIF: We maintain our position on Greek debt; calls on ECB to share burden
  • Richmond Fed index 12 in January from 3 in December
  • IMF cuts global growth outlook to 3.3% from 4.0%
  • IMF: Japan should look at faster increase in consumption tax
  • SNB’s Danthine: Will enforce franc limit with determination; stand ready to buy unlimited amounts of foreign currency
  • ECB’s Praet: Sings of stabilization but credit to remain tight for several months
  • Buba’s Weidmann: IMF outlook on Germany too pessimistic, fiscal compact could fall short
  • ECB’s Mersch: European recession may already be over after rise in PMI
  • Portugal PM: No need for more money or time from EU/IMF
  • BOE’s King: More scope for QE
  • IMF calls for ECB to take haircut on Greek debt
  • S&P 500 falls 0.1% to 1315; Milan up 0.1%
  • US 10-yr note unchanged at 2.06%; Italian debt rises 5 bp to 6.18%
  • WTI falls $0.41 to $99.18; spot gold falls $12 to $1665

EUR/USD tumbled to 1.2954 in early US trade as heavy hedge fund sales and fears that Greece and the banks will not be able to come to an agreement on the long-awaited bond swap undermined the single currency. Both sides are playing chicken, daring the other to call hi bluff. Central bank buying in the 1.2950s helped build an intraday base and real-money buying late in the European session helped push the pair back up in its range. We end the day with EUR/USD close to US high at 1.3028. 1.3080 remains critical resistance for EUR/USD near-term amid talk of large stop-loss buy orders above 1.3100.

USD/JPY had a good morning in NY, rallying as far as 77.86 before running out of steam. A front-page WSJ story tipping the first Japanese trade deficit since 1980 was a catalyst for shorts to cover. Stops above heavy resistance in the 77.30 were triggered on the rally. 78.00/05 is further resistance near-term. 77.35 is solid support. We end at 77.73.

Cable held up well today despite King reiterating that if you have any sterling-denominated bonds, he’d like to buy them from you…We end the day at 1.5615