ECB President Mario Draghi left rates unchanged and expressed a lot of confidence in the press conference. In a last moment statement, Draghi also left the door open for an ECB contribution to Greece. Unfortunately for Greece, it first has to comply with the troika’s demands and pass harsh austerity legislation, before it is awarded any help.

Pressure is growing on Greece’s politicians to accept harsher measures regarding the labor market and to fully commit to them, also after the elections. Negotiations are at a sensitive point. In the US, the excellent jobs report lowers the chances of QE3 and provided hope for the whole world. It weakened EUR/USD.

Bernanke’s pledge to keep interest rates at near-zero levels until late 2014 and the openness towards QE3 hurt the dollar across the board and the euro certainly enjoyed it. And Europe isn’t only Greece: fresh figures provide hope that Europe could avoid an outright recession. Also the downgrade many euro-zone countries by Fitch couldn’t stop the move. of Will this rally continue?

After talks about the Greek haircut broke down last week, they resumed and apparently yielded a deal. Also Spain’s auctions distanced it from the danger zone and helped the euro. Yet in Greece’s case, it’s important to remember that a 50% haircut isn’t a 50% reduction of debt, and that only the fragile banks will suffer and not the ECB. Not yet.

At first, things were looking good for the euro – the single currency enjoyed Draghi’s confidence regarding the success of the LTRO operation. The aversion of a credit crunch is far from certain, after Friday’s events. France lost its perfect AAA rating, together with other euro-zone countries. In addition, Greece is on the brink of default after the talks about a haircut broke down. Will the ECB replace the private sector and take a hit on Greek bonds? Greek banks are in worse shape than estimated. Together with the breakdown of Greek PSI talks, the Greek troubles are not priced in. While Germany and Spain look better (and this pushes the euro higher), Italy remains in trouble, Portugal moves closer to default and Greece is widely seen as defaulting.

Troubles in Unicredit, rumors about issues at Deutsche Bank and the anticipation for a downgrade of France all weigh on the euro, in addition to weak economic figures from all over the continent. Is Draghi ready for QE? On the other side of the Atlantic, the US continues seeing growth in jobs and a drop in unemployment. The IMF has doubts about Greece’s ability to avoid default, and a German politician talks about a need for a bigger haircut. This doesn’t bode well for the euro. The euro was trading in calm waters until Fitch said that the euro-zone is facing a “cataclysmic” collapse if the ECB doesn’t intervene. Positive comments from Merkel regarding the ESM helped. Also a downwards revision of the euro-zone GDP weakened the common currency. All eyes are now on the ECB – see a preview of the highly anticipated decision.

Italy had another bad bond auction. It’s not that yields jumped, but if they remain at current levels, the euro-zone’s third largest country will find itself in a debt trap that can bring the whole system down. The pair ended the year over 400 pips lower. Will 2012 see more falls?

The ECB weighed in with its massive loans to the banks: more than 500 European banks took loans that reached around 489 billion euros. The optimism from this large operation was short-lived. Peripheral bonds cannot really calm down without direct buying from the ECB.

The lack of an immediate remedy from the EU Summit was the main reason out of many why the euro fell. This came despite some positive signs from PMIs and successful bond auctions in Spain. The IFO business climate could provide good news for Germany, but the Italian worries are due to continue, especially with the GDP report.

The ECB cut the rates and helped the banks, but didn’t provide the big bazooka to help solve the struggling indebted countries. In addition, the EU Summit provided nice promises for the future, but no immediate relief. Will the Chinese come to the rescue once again? There are too many doubts.