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The euro has rallied along with all other assets this morning, aided by strong China data and general euphoria that seems rather out of place given the serious situation in Europe.
The outlook remains firmly negative, given that S&P carried on downgrading last night with a cut to the EFSF’s rating, from AAA to AA+. Talks between Greece and its creditors resume on Wednesday, but worrying noises have emerged already, with Greece’s deputy finance minister saying that the country cannot sustain austerity indefinitely, and Italian PM Mario Monti making a plea for active German support for ECB bond-buying in order to prevent a popular backlash in Italy.
Nonetheless, widespread US dollar weakness, spurred by the better China GDP and retail sales data, has lifted all assets today. It will be interesting to see whether anything changes when the US rejoins global markets this afternoon after its day off yesterday.
