GBP/EUR 1.3586 (0.7359)
Once again we await the outcome of a Eurogroup meeting in which markets hope there will be a resolution to the ongoing Greek debt negotiations. In fact right now it appears to be less of a negotiation, more of a standoff. Yesterday the Greek government applied for a six month extension on their bailout loan, the responses thus far appear to be very mixed with the German finance ministry outright rejecting the proposal, whereas if you were to believe other reports Eurozone leaders are slightly more positive on the outcome of the talks.
Greece still refuse to accept additional terms, while Germany in particular appear unwilling to adjust their stance. One huge area of concern for me right now is the amount of complacency in markets, despite many risk indices suggesting the possibility of a ”Grexit” is at an all-time high, markets seem to be taking it for granted there will be a favourable resolution, EUR maintains its consolidative range against most majors, Eurozone peripheral yields fell yesterday and equity markets including the CAC and DAX both traded higher. US equity markets also traded higher, shrugging off the more downbeat FOMC minutes, while overnight the Nikkei traded higher. The USD actually found its feet yesterday, markets appearing to completely ignore the dovish tone from Wednesday’s FOMC meeting and focus on some marginally positive US data. The Greenbacks performance was mixed overnight, trading lower against the AUD, JPY and NZD, while advancing against GBP and the EUR thus far this morning.
Yesterday saw the first time the ECB released the minutes of their policy meeting, given we know they decided the up the ante on their bailout program to €60bln per month (through to Sept 2016), versus rumours of a €50bln program we were hoping to get some further detail on ECB thinking. The minutes showed that the ECB’s governing council felt that inaction could cause greater risks to the region, hence the up-scale QE program. While the Eurogroup meet today, we may well see another good ol’ hoof of the can down the road, the only issue now is that next week the can will hit a wall when emergency funding to Greece runs out. This will make the EUR vulnerable to excessive volatility next week, and should Greece and EU leaders fail to find reasonable terms capital control discussion are likely to take place to prevent a run on Greece and protect the Eurozone.
GBPUSD has found itself under pressure this morning, UK retail sales data is due across the wires this morning, January sales are expected to have declined .2% through January, but up year on year to 5.9% from 4.2%. GBP finance and public borrowing data also crosses the wires, support in GBPUSD should come in around 1.5330, while EURGBP once again broke to fresh lows this morning below .7350, although the slide in GBPUSD has helped EURGBP rally higher since those fresh seven year lows earlier this morning.