This week will feature plenty of talk about Greece and the conditions for the EU’s second bailout, now that the Greek debt restructuring talks are close to agreement. On tap this week will also be the most important fundamental indicator of the month the Non-farm Payroll report, but we also recieve manufacturing reports from around the globe for the January period. Euro-zone countries issue around 22 billion of euro debt, and the political question about the possible loss of sovereignty for Greece.

The European sovereign debt market continues to show stabilization as successful auctions give the EUR a lift. Also, the market is beginning to again price in the successful completion of the debt negotiations between Greece and its private bondholders. The latest person to say an agreement is close is the EC’s Ollie Rehn.

The EUro came under renewed pressure overnight as worries continues to spread about the stalemate in the Greek debt negotiations. At the same time pressure built on Portugal’s yields as the country looks unable to meet its commitments and may require further funds. However, like in yesterday’s session the EUR managed to find support at the start of NY session.

Today’s key Euro-zone developments include the continued failure of Greece and its creditors to come to an agreement on debt restructuring. Another concern is that Portugal may need to get a 2nd bailout, pressuring the EUR in overnight trading. On a positive not, PMI data from the Euro-zone and Germany for January was stronger than expected.

The EUR/USD continued to extend its rally from last week, bolstered by comments from the IMF head Lagarde, who called for European to bolster their bail-out funds. Talk of running the EFSF and ESM concurrently also likely helped boost sentiment. This comes despite EUR short positioning continues to hit record highs and the Greek debt swap negotiations remain unresolved.

The “good times” for risk sentiment continued in today’s session as European stocks, US stock futures, and higher yielding European and commodity currencies rallied against the USD and JPY. Key developments include positive bond auctions from France and Spain, optimism over the Greek debt negotiations, focus on some better than expected US bank earnings, and news from China on loosening capital requirements.

The World Bank warned that 2012 will be a rough one, and warned developing nations to “prepare for the worst” and that the potential for a global crisis similar to 2008-2009 is evident in the euro-zone sovereign debt crisis situation. The IMF is said to again be asking countries to top off their contributions to the tune of $500 billion. Portugal held a bill auction, and we continue to await the resolution or lack thereof of Greek restructuring negotiations.