Wrote this post at the crack of dawn this morning since when eurusd has broken above 1.41 and heading towards 1.42 on back of much better than expected data from the US. So many commentators have written off the US but be prepared for a dramatic reversal, albeit one surrounded by massive volatility.

There is no backing down from ‘this’ persistent EUR decline. The market risk premium that was aggressively applied last week feels in danger of giving it all up and then some. Sentiment remains vulnerable allowing event risk to dominate on a disappointing of potential ‘under delivery’ at the Brussels Summit this weekend.

Overnight brought a host of further stress indicators to the fore. What’s bad for China is bad for Europe. Data revealed that Chinese growth figures fell short of expectations coupled with some disappointing earning from Euroland is again boosting market volatility. With Germany trying to manage market expectations, Moody’s is offering to do the same by putting France on a three-month notice. They have indicated that ‘pressure from debt metrics’ could leave the country with a negative credit outlook, even a downgrade, and this only months ahead of important elections.

Also getting traction this morning is Nouriel Roubini believing, pragmatically so, that the Eurozone requires the dollar to fall below $1 for a EU crisis solution and that the ECB needs to slash rates. None of these are new ideas, it’s perhaps the sensitivity of timing in such an important week for the vulnerable asset classes.

It goes to show how much rhetoric affects sentiment, as the weekend approaches expect this rhetoric to intensify.

Great roundup from Oanda & how markets can be affected by rhetoric (mostly empty) but which can gain traction so very quickly. All we can say about markets at present is that they are highly volatile & febrile and will continue to be so for the foreseeable future.

Euro project was a daft idea in the first place. No monetary union has ever succeeded without political union. However, a weaker euro would at least help the Club Med countries & Germany exports.

What about rogue politicians – Barroso is particularly repellent – ex Maoist – a traitor to his original beliefs & the people of Europe.

Although a tricky week for trading with Chinese on an extended bank holiday, PMI data & non farm payroll data on Friday trading opportunities do exist. However, with such high volatility it’s a question of getting in and getting out quickly, safely and profitably!

This week’s highlight obviously will be Friday’s employment situation report. Before then, traders will get their chances to tweak their forecasts with ADP employment on Wednesday and jobless claims Thursday. Current estimates puts the print just over an unimpressive +50k.

The market continues to wait for any positive news about Greece, again there was little produced over the weekend. The Greek cabinet approved new budget cuts, but the overall picture is one of a ‘failing program’. Greece’s GDP growth and budget deficit targets for 2011 and 2012 are significantly above estimates produced only three months ago. With the economy contracting close to 6% and protests increasing, the further budget and forecast downgrades likely challenge the credibility of Greece’s ability to meet even these new targets.

Greece is not the only challenge this week. Trichet Chairs his final rate policy meeting. Is it a surprise cut we can expect or the usual road sign policy change? European policy makers prefer to be more transparent, they do not even like surprising themselves! Ben gets to testify midweek, before the ‘holy grail’ of data, NFP is to be released on Friday. He is expected to emphasize the economic downside risks and that all policy options remain on the table. We can only guess what NFP will give us, for such a large country, it always surprises!

Roundup of what to expect this week plus summary of last week’s price action across related markets. As forex traders we need to expand our horizons by looking at related markets such as oil, gold, silver, bonds & equities so we can judge risk tolerance & see where the money is flowing.