As the focus remains on trying to find a comprehensive solution to Europe’s sovereign debt crisis tensions are likely to be running high again this week in the run up to Thursday’s ECB meeting and Friday’s EU Summit. The Summit is expected to put forward proposals for EU treaty changes allowing for greater fiscal union in the euro zone, perceived by many as a crucial part of the solution to the current crisis. The euro was modestly higher overnight, with market sentiment described as guarded following the news of fresh austerity measures in Italy.

With markets so short the euro, there is likely to be some short covering on any good news that comes out of Europe over the coming days. Data released over the weekend showed that by the end of last week, speculators had their largest net short position in 18 months last week. As well as the EU Summit, markets will also be watching Thursday’s ECB policy meeting, with the central bank widely expected to cut interest rates for the second consecutive month. The post meeting press conference will be watched carefully as markets look for signs of a softening in tone from the central bank with regards to taking an increased role in the sovereign debt crisis. The ECB is also due to publish its latest staff quarterly economic forecasts.

The first part of the Irish budget package for 2012 will be released today, with spending measures being presented by the Minister for Expenditure and Public Sector Reform Brendan Howlin at 2.30pm this afternoon. Meanwhile, data released this morning showed that the Irish services PMI rose again in November, moving to 52.7 from 51.4 in October. This marks the eleventh month in a row that activity in the sector has increased with last months jump in the new business sub index to 52.6 from 49.7 suggesting further strength ahead.