GBP/EUR 1.4013 (0.7130)
Risk has found plenty of cause for support this morning with last ditch efforts to save Greece finally showing some progress. Markets initially opened the week’s trading session lower, with many Eur pairs also gapping lower on the open following reports that the emergency EU summit had been called off with little progress on negotiations. As Sunday evening advanced details emerged of an extremely strict stance taken by EU leaders, for the first time it was EU leaders that came into harsh criticism as they laid out their demands for Greece which many have deemed as excessive. #Thisisacoup was trending on twitter last night as markets viewed Greek creditors stance as too firm and looking to essentially strip Greece of its sovereignty but as I type once again leaders are discussing an agreement, for now it appears that Greece will once again avoid a “Grexit”, ESM funding will be received once Greek parliament can agree to the changes. Access to funding will come via the ESM fund, with expectations Greek banks will be in the position to open once again later in the week, providing agreed by Wednesday. Asian markets also traded higher through the opening session with last week’s rout in Chinese markets continuing a three days rally from declines of over 30%.
Details of this deal are only just emerging as I type and as mentioned above progress will be based on the Greek Parliament accepting and beginning to implement the required changes. While progress certainly appears to have been made I find it very difficult to see how Greeks will accept this “deal”, it would appear that this goes against almost everything the Syriza party has campaigned for and last week’s rejection has apparently cost Greece further, with the terms I’ve seen thus far, far more restricting than what Greek creditors would have accepted several months ago. While a deal appears to be done, Greece’s “game theory” approach may have just cost them further. The details are still emerging but the basis appears that there will be a €50bln fund set aside for the privatisation of Greek assets with the aim of generating profits from these business in order to pay down the Greek debts. Banks are expected to receive some €25 bln for recapitalising. Greek debt has been re-profiled via term extension rather than write down and comments from the Greek PM stating they have averted a banking and financial system collapse have done little to offer the EUR additional support this morning as EUR pairs begin to decline as further details begin to emerge. We are sure to see plenty of volatility in EUR through the day, but for now its appears almost a case of buy the rumour sell the news and EUR declines continue.
There is very little in the way of major economic data due from today’s calendar and with that in mind we will be continuing to look at larger risk trends to gauge direction in major currency pairs. While there is certainly a bout of positivity following the apparent Greek agreement with its creditors we will be continuing to look towards markets to see how they absorb the details. EURGBP has pushed back below .7150 following a rally above .7200 late last week, support below is likely to come in around the .7120 area, with firmer support below .7100. EURUSD has also dropped from the morning highs and has just dropped back below 1.1100. Needless to say Greece will likely still dominate the Euro’s outlook for much of the week but looking at GBP we have CPI inflation data due across the wires tomorrow, while labour market data is due Wednesday, confirmation of a bottoming out in inflation and continuing rising wages should be supportive of GBP pairs advancing further. Similar inflation data from the US on Friday tops the US calendar this week, while there are a number of Fed speakers due across the wires this week with Janet Yellen also delivering a semi-annual testimony to the House financial panel on Wednesday.