Greece remains the focus of investor sentiment, but a new potential headwind to more bail-out funds has been thrown into the mix. Over the weekend, the Financial Times sparked a flurry of chatter when it reported that the EU could be pushing to gain power to veto and change Greek budgets going forward. The news was met with stiff opposition in Athens, understandably so, with Greece's Finance Minister Venizelos saying that the plan would force his country to choose between financial assistance and national dignity.

At the same time, Athens is negotiating with private sector debt holders. It now looks like the long-term value of privately held bonds will be cut by over 70%, with some reports suggesting that the lowest coupon rate that the IIF would accept is around 3.6%. If so, this would represent a big concession from the private sector, considering they were looking for a rate closer to 4.25% only a week ago. We think that the market will have confirmation of a deal in the coming days, but any deal must represent enough of a cut to convince the EU and the troika that Greece will  be able to bring its debt to 120% of GDP by 2020. If not, it opens the door for more fiscal control of Greece's budget by Germany and the rest of Europe.

News out of Iran has oil traders on edge. Tehran is threatening to stop selling oil to some European countries, after a bill failed to pass through parliament which was designed to halt the sale of oil to all EU nations. It now looks like a draft bill will be prepared this week that aims to ban oil sales to select European nations.

Whilst we did witness some reaction in the global oil market on Friday, we do not expect the bill, even if it passed the Guardian Council, to have a huge impact oil prices. Our reasoning is that the international oil market is well supplied and on the demand side, countries within the EU can seek the black liquid from alternative sources, such as Russia, Saudi Arabia and/or Libya.

Instead, the bill might backfire and make Iran the biggest loser. Iran sent an average of 600,000 barrels a day to the EU during 2011, and Tehran would have to find an alternative source for this oil, which could involve selling oil at significantly discounted prices. The only real upside for the Islamic Republic is that the two largest individual buyers of Iranian oil, India and China, have stated that they will continue to buy its oil. Nonetheless, this might be a moral boost but these nations alone will not be able to fill the gap left by losing 600,000 barrels a day of demand.

EU chiefs arrive in Brussels later today to finalise a formal treaty centred on fiscal controls for European nations and to discuss the ESM. There could be some tension between Merkel and other EU officials, with the German Chancellor refusing to discuss boosting the region's rescue funds or even talk about it until the March meeting. Traders in Asia were clearly wary of rallying too much before the summit, as any negative news from Brussels has the ability to turn risk sentiment without much warning. Instead, investors consolidated their positions, resulting in mild losses for risk assets.

During trade in Asia the aussie could not manage to hold above 1.0600 against the dollar, sinking to as low as approximately 1.0568, before a temporary bounce-back off which was cut short by a push below its 100hr SMA. Around the same time, EUR/USD slid below 1.3200 and continued fall throughout the Asia session. The slightly negative sentiment is feeding into equity markets throughout Europe, which look like opening mildly in the red.