Euro Retreats Mildly on Greece Stalemate

Euro retreats mildly after IIF has made the "maximum" debt swap offer but was rejected by Eurozone finance ministers. As Dutch Finance Minister Jan Kees de Jager said the offer would leave's debt "substantially above 125% of GDP in 2020, missing the target of 120% of GDP. Luxembourg Prime Minister Jean-Claude Juncker said that the Greek program is "off track" and he demanded new coupon rate to be below 3.5% until 2020 and below 4% over the full 30-year period. IMF also raised the concern that the proposed plan would leave Greece with higher than expected debt burden. Greece Finance Minister Evangelos Venizelos remained optimistic that there was "very constructive cooperation with private sector" and they're "ready to finalize the procedure on time." Venizelos expects to present a formal offer to creditors by February 13.

IMF Managing Director Christine Lagarde urged European officials to raise the bailout fund and build a larger "firewall". Lagarde said that "substantial real resources" needs to be added by doling the temporary EFSF into the permanent ESM. Also, she proposed fiscal risk-sharing to deepen Eurozone's integration, including "euro-area bonds or bills" and debt redemption fund. Meanwhile, it's reported that Germany could be open to combining the capacity of EFSF along with ESM starting in July and run the two funds in parallel.

BoJ left rates unchanged at 0-0.1%, and it's asset-buying program at JPY 55T, as widely expected. In the accompanying statement, the bank noted that economic activate has been "more or less flat" due to "a slowdown in overseas economies and the appreciation of the yen". 2011 fiscal year growth forecast was lowered to -0.4% contraction while 2012 projection was lowered from 2.2% to 2.0%. 2012 and 2013 growth prospects were "broadly unchanged" and the bank expect economy to return to moderate recovery in first half of 2012 fiscal year.

BoE policy maker Adam Posen said that outlook has improved a little since BoE restarted quantitative easing back in October but the problems are not solved yet. Posen said a "big problem" is people's reluctant to "take on risk investments", including "the West" and Japan. Meanwhile Posen also noted that if new forecasts for growth and inflation justify, the bank would expand the GBP 275b easing program.

On the data front, Australia conference board leading indicator dropped -0.3% in November. Eurozone manufacturing and services POMI will be a major focus in European session. Canadian retail sales will be the main feature in US session.