Euro recovers slightly but is it only delaying the inevitable?

The Euro has recovered slightly from 4-month lows against the US Dollar after Japan followed China in pledging to buy Eurozone bonds in an effort to show solidarity and support the European Financial Stability Fund (EFSF).

While this may help European debt problems in the short term it is unlikely to make any difference with respect to the problems within in Europe and probably only serve to delay the inevitable. Until such times as European leaders grasp the fact that some form of restructuring is necessary the Euro is likely to remain under pressure.

The European Central Bank has tried to take some of the sting out of the current Euro weakness on the foreign currency exchange market by buying 5 and 10 year Portuguese bonds as well as Greek and Irish bonds, pulling the Euro away from its recent lows against the US Dollar around €/$ 1.2865.

With Portugal, Spain and Italy looking to raise over $40 billion this week rising bond yields threaten to increase the crisis prior to the European Central Banks monthly meeting and press conference.

The press conference by ECB President Trichet could well be extremely illuminating, especially if the auctions get covered at close to the current high market rates.

Sterling had a rather mixed day yesterday sliding back slightly against a basket of currencies after the strong gains of recent days. Sterling wasn't helped by a worse than expected decline in house prices in December which, according to the Halifax, declined 1.3% against an expectation of 0.4%.

The British Retail Consortium sales monitor for December also disappointed overnight confirming the difficult snow affected Christmas trading period coming in at -0.3%, down from a rise of 0.7% in November.

However with no other economic data of note until Wednesday, sentiment is likely to be driven by events in Europe, and the peripheral bond markets.