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FX open: Greek problems won't go away

Date: Monday 06 Feb 2012

FX open: Greek problems won't go away

The European session is under way with equities showing an average gain of 0.3%. The market is trying to stretch out the gains following Friday’s positive US Employment Report. On the other hand, Greek negotiations with private bondholders is an open-ended issue that never seems to go away. There is reluctance in Greece to accept the new austerity measures requested by the Troika.

In the foreign exchange market, the euro majors have declined due to Greece’s stalemate. The euro/dollar fell below 1.3100 while the euro/yen held above 100. The dollar/yen was flat at 76.65 while the Cable (pound/dollar) approached support at 1.5775. The kiwi and the aussie were the weakest currencies and fell against the dollar and the yen.

Today we have a limited macroeconomic agenda with data in Australia indicating a slowdown. Retail sales for December fell 0.1% instead of the 0.2% growth expected. Australian asset inflation, which is closely following by the Reserve Bank of Australia, came in at 0.2% month-on-month (2.2% year-on-year) instead of the 0.5% increase (2.4%) expected.

In the Eurozone, the Sentix investor confidence index will be released and in Germany there will be factory orders for December.

Later this week, on Thursday, we will have the interest rate decisions by the Bank of England (BOE) and the European Central Bank (ECB). Given the current economic environment, we believe that the BOE will apply new monetary expansion. It is likely that it will increase its asset purchase programme from the current £275bn mark.

The ECB is expected not to touch the current 1.00% key rate following two consecutive cuts. It will probably pause in order to see the effects of previous stimulus, such as the outcome of its bank liquidity operations.

FM.

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