FOREX: Euro Slumps, US Dollar Gains as Greece Flirts with Default

2012-02-06 07:14:00 Ilya Spivak, Head Strategist, APAC

Talking Points

US Dollar Pushes Broadly Higher on EU Crisis Jitters, Unwinding QE3 Bets
Euro Underperforms as Greece Comes Closest Yet to an Outright Default
S&P Futures Signal Risk Aversion, Merkel/Sarkozy Press Conference on Tap

The US Dollar (ticker: USDollar) soared in overnight trade, adding as much as 0.5 percent against its leading counterparts, as Greece struggled to come to an agreement that would pave for additional EU/IMF aid. The greenback found additional support as investors pared back expectations for additional Federal Reserve stimulus after last week’s rosy US employment report. The Euro underperformed, down as much as 0.8 percent.

Bad news began to pour out of Greece on Friday amid reports amid reports that all three of the parties in Greece’s ruling coalition have rejected deeper austerity measures required to receive the next tranche of EU/IMF funding before €14.5 billion in maturing debt comes due on March 20.Needless to say, this lays the groundwork for a Greek default.

In practice, that is not nearly as ominous of a prospect as it was even 2 months ago. The ECB has funneled close to half a trillion euro into the banks via its 3-year LTRO and has been dutifully buying other countries’ bonds, so the firewall against a massive credit crunch (especially given small the size of Greece’s economy) is arguably in place. That has not kept markets from entering panic mode amid rising uncertainty however, and more of the same seems likely as traders extrapolate the Greek scenario to other, larger countries.

Looking ahead, a decisive moment appears at hand, with Greek Prime Minister Lucas Papademos setting a 10:00 GMT deadline for party leaders to make a decision on the second bailout’s terms. German Chancellor Angela Merkel and French President Nicolas Sarkozy are scheduled to hold a joint press conference at 11:45 GMT, with traders on the edge of their seat in the meantime. S&P 500 stock index futures are trading sharply lower in late Asian hours, hinting safe-haven demand will keep the US Dollar well-supported heading into European hours.

Asia Session: What Happened

GMT	CCY	EVENT	ACT	EXP	PREV
23:30	AUD	TD Securities Inflation (MoM) (JAN)	0.2%	-	0.5%
23:30	AUD	TD Securities Inflation (YoY) (JAN)	2.2%	-	2.4%
0:01	GBP	Lloyds Employment Confidence (JAN)	-73	-	-75
0:30	AUD	ANZ Job Advertisements (MoM) (JAN)	6.0%	-	-0.6% (R+)
0:30	AUD	Retail Sales Ex Inflation (QoQ) (4Q)	0.4%	0.6%	0.5% (R-)
0:30	AUD	Retail Sales s.a. (MoM) (DEC)	-0.1%	0.2%	0.1% (R+)
0:35	CNY	Leading Index (DEC)	100.25	-	100.33 (R+)

Euro Session: What to Expect

GMT	CCY	EVENT	EXP	PREV	IMPACT
-	GBP	New Car Registrations (YoY) (JAN)	-	-3.7%	Low
8:00	GBP	Halifax Plc House Prices s.a. (MoM) (JAN)	0.1%	-0.9%	Low
8:00	GBP	Halifax House Price (3MoY) (JAN)	-2.1%	-1.3%	Low
8:00	CHF	Foreign Currency Reserves (JAN)	-	254.2B	Low
9:30	EUR	Euro-Zone Sentix Investor Confidence (FEB)	-16.5	-21.1	Low
10:00	EUR	Deadline for Greece Decision on Bailout Terms	-	-	High
11:00	EUR	German Factory Orders n.s.a. (YoY) (DEC)	-0.4%	-4.3%	Medium
11:00	EUR	German Factory Orders s.a. (MoM) (DEC)	1.0%	-4.8%	Medium
11:45	EUR	Merkel, Sarkozy Press Conference in Paris	-	-	High