EUR/USD Muted to China EFSF & ESM Chatter, Bernanke Next

Greek deal saga continues; China considering EFSF and ESM involvement; Spanish and French auctions; Swiss trade surplus declined; UK PMI fell and EZ PPI dropped; BOJ "immediate steps unlikely". Market turns to jobless claims, MPC Posen and chairman Bernanke's testimony. The 1.3220-1.3070s consolidation in EUR/USD has triggered Tuesday's EUR/USD trades in 3 occasions.

The USD is marginally higher in the ongoing session. Major European equities are mixed in the -0.15% to +0.3% range.

The Greek deal saga continues as the Greek government spokesperson said that a bulk of the deal is already completed. Meanwhile the IIF issued a statement that "constructive discussions continue". Interestingly, rumors started to make rounds that public sector will need to be involved in Greek haircut as well as the private haircut will not be enough.

EUR/USD was boosted earlier in the session when Chinese PM Wen said that his country is considering a greater involvement in EFSF and ESM funds supporting efforts to stabilize the Euro. EUR/USD soared about 80 points nearly to 1.32 but quickly lost its gains and returned towards 1.31.

Bond markets saw two important auctions today - Spanish auction ended with a full take up and lower yields. According to MNI, Spain has completed 24.6% of 2012 gross funding needs. France sold EUR 7.96 bln worth of bonds today (EUR 6.5 8 bln target). The largest auction was EUR 5.698 bln worth of 10 year OAT with average yield 3.13% and cover 1.71.

On the data front, Swiss trade surplus declined in December to CHF 2.07 bln from previous CHF 2.95 bln, UK construction PMI fell in January to 51.4 from 53.2 and Eurozone PPI contracted -0.2% in December from +0.2% m/m and despite elevated energy prices declined to 4.3% from 5.4% y/y.

BOJ's Yamaguchi said today that BOJ is ready to act but needs thorough analysis of currency trends before taking policy action. Even more interesting was a comment that "immediate steps on JPY are unlikely". USD/JPY trades right above the 76 level, about 50 points above historical lows.

New York trading will turn to jobless claims that are due at 8:30 am ET and are seen lower at 373K from previous 377K.

GBP volatility could increase at 9:00 am EST when BOE MPC member Adam Posen delivers a speech in London.

The key event is FED chairman Bernanke's testimony on the economic outlook before the budget committee. It starts at 10:00 am EST but the Q&A session which often impacts volatility emerges after the speech.