Market Rumours

EUR/USD's bounce is unwinding the extreme sentiment and momentum readings that built last week notes Barclays Capital. However the bank says in the absence of a weekly close above 1.3775, or a break above 1.3860 it continues to favor the downside and targets of 1.3270 and 1.29 sometime in 1Q. EUR/USD now at 1.3794.

With the BOE Inflation Report coming out on the dovish side and the wires full of bailout plans for Greece[unsubstantiated though they may be] EUR/GBP is back in favor. The cross prints the day's high of 0.8806 up half a penny on the day. There will likely be resistance between the recent highs of 0.8817 and 0.8830, however above there there should be clear air to 0.89. (GST)

Sterling drops further after BOE governor King says all options are open on QE and that more QE will follow if needed to keep inflation on track. GBP/USD drops to 1.5680, EUR/GBP prints the day's high of 0.8793.

Berlin has blinked before Athens, and the result will be a lose-lose for the euro, says Stephen Jen at hedge fund BlueGold. A German rescue package for Greece would be "premature" at this stage, and would not prevent years of slow growth, Jen says. The step gives a strong signal that Portugal, Ireland, Italy, Greece and Spain are too big to fail, with banking links within the four countries, within the euro zone, and into Eastern Europe threatening a "real crisis for euro land," he says. The Greek unions know they are too big to fail and will ensure lax discipline, he adds. EUR/USD at 1.3787.

GBP/USD has bounced off its 1.5545 support area but is likely to struggle to overcome the old 1.5850-1.59 breakout area says Barclays Capital. While the rate holds below there, the bank will stick with the view that the downtrend is sustaining with a target of 1.5525 for later in February. Should tha level give way, it will be viewed as a major bearish signal and open risk toward 1.5275 and 1.4685. GBP/USD now at 1.5730.

The Bank of England will almost certainly revise down its growth forecasts for this year while ramping up its inflation profile when it unveils its quarterly Inflation Report on Wednesday, a Reuters poll showed on Friday. Fourteen of 19 economists in the poll, taken this week, said the central bank would revise down its growth forecasts from the surprisingly upbeat numbers announced in November, with four saying it would be unchanged and one revised down. November's projections saw growth starting at the beginning of this year, and picking up to 3.75 percent at the end of 2011. But it appears that the Bank has become more cautious on the outlook and economists tend to agree. "The wording of the recent statement accompanying the interest rate announcement gave the impression that the committee is somewhat hesitant over recovery prospects," said Philip Shaw at Investec.