We should be paid for this.

Yesterday our early morning comment emphasised that the Northern European States would eventually fall into line and prop up the PIGS because the whole project was essentially a political rather than an economic one and, lo and behold, before the day was even up the Germans had effectively capitulated and promised to sign the cheque.

The rebound in the Euro was the immediate reaction but in the belief of this commentator this is very short sighted. Long term the Euro would have been better off by playing hard ball with the profligate south and (if necessary) actually kicking out non compliant member states. Now the EU project will commit to throwing good money after bad to the detriment of the currency as a whole. The squeeze on the shorts may have had an immediate impact and this may go on for a while but the fact is that the Greek budget proposals are very mild and go nowhere near a solution to the overall problem, they are considerably weaker that the Irish budget proposals of a few months ago and nobody was rushing to the aid of the Emerald Isle.

This is yet another political solution (by which I mean just printing more money) to an economic problem and commits the Northern States to spending even more and this is on top of all the other various calls and commitments on Treasury purses that have been promised over the last couple of years.

Today also sees the ill informed Robin Hood tax proposal from various ‘interested parties’. It is curious how keen people are on a Tax that they believe will not affect them personally but will be inflicted on other people who they do not like much anyway. The 0.05% proposed tax sounds tiny and every one always uses the sum of 5p on £1,000 transaction to portray its limited impact. Unfortunately this merely shows up their ignorance of the sums actually involved in financial transactions. FX is traded in millions (not £1,000) and the cost of transaction at the moment for, say, a £1,000,000 GBP/USD deal is around $12 to $15 in total (divided between the broker, the clearer, the platform provider etc). To add 0.05% on this would be £50 (or $78 at current exchange rates). This is at least FIVE times more than the total cost of the deal at the moment and this would be on top of the current fee. If campaigners really believe that the FX market will just stand idly by and accept this they are sadly mistaken. The entire market will just up sticks and move to whichever jurisdiction does not impose the tax (and you can bet your bottom dollar that many will not). LCG is just a very small FX provider but even we transact some $2 billion a day across our platforms…on this we make about $5 to $8 per million revenue on average … a 0.05pc fee on this would mean our tiny company paying some $100,000 a day (!!!!) in new taxes; about 15 times the total profit (after costs) made by the actual company.

Markets are still bolstered by the EC bail out announcement and the FTSE is called up about 30 at 5140 this morning. Dealers are in two minds as to the overall direction as the sell off last week seemed excessive but the reasons for the rally back up also seems dubious. The supports at 5000 and 5030 held well and even if we go into reverse over the next few sessions it will probably take some effort to break down through them. On the other hand the old support at 5180/5200 is now likely to act as a solid resistance to any move back up. Clients are likely to attempt to play this range but should be wary of failure at either end.

Currency markets reacted as mentioned earlier to the news that the Germans will agree to a bail out of Greece in some form or other. The Euro put in one of its best days for quite some time but in truth the rally was not as powerful as one might have expected (especially if traders were as short as the FT suggested in yesterday’s headlines). Either the over selling theory has been exaggerated or (which is my favoured reason) the market is still actually very long of Euro’s from the long bull run of Mar to Dec 2009. Funds were piling into the currency as a quasi Chinese Yuan hedge versus the Dollar and it is not clear whether these positions have yet been wiped out in the last two months of weakness.

With the Euro zone needed to finance ever more borrowing the chances of rate hikes in the near to medium term are probably eased as well.

Sterling recovered in line with the Euro but the rally seems muted to say the least. 1.5720 to the upside is proving a problem to get over but 1.5560/70 is also acting as good support to any weakness. The buy side seems to be the most favoured in early action today but traders are aware that any micro/macro bad news across the globe seems to be taken as a dollar buying signal and so for the time being the big shifts are generally currency negative.

Gold has recovered marginally from the sell off and we are now hovering at around the mid Dec to start of Feb previous range lows ($1075/1080). If we can overcome the level and close above about $1082 there may be an argument for a potential rally but at the moment clients are selling looking for a retest of the 1060/65 closing lows support.

Oil is slipping in early trade with the Inventories due out this afternoon. The recent cold weather in the US will have reduced vehicle use but increased power requirement and so it will be interesting to see the effects. At the moment there appears to be little pressure on Supply and the rally of yesterday seemed to take its triggers from the Euro news as well. Markets may decide on reflection that discretion is the better part of valour and it is truly difficult to call a direction. On the one hand we have the undoubted fact that India and China (amongst others) are going to require ever increasing supply but on the other this is a very, very long term play.