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

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

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

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2863

1.3221

GBPUSD

1.5698

1.5867

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow me on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com

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