Talking Points
- Eurozone Finance Ministers Announce Deal on Second Greek Bailout
- Australian Dollar Sold as RBA Minutes Restate Rate Cut Possibilities
- US Dollar Likely to Rise as Spotlight Shifts to Global Slowdown Fears
Overnight news flow was dominated by the emergence of an agreement on the second Greek bailout package following an intense Eurozone finance ministers’ summit in Brussels. As expected, policymakers pledged to offer Athens €130 billion in funding through 2014 and outlined an accord on private-sector involvement in reducing Greece’s debt burden that would avoid outright default and aims to bring the country’s debt-to-GDP ratio to the threshold of sustainability at 120.5 percent by 2020.
While the Euro jumped higher in the immediate aftermath of the announcement, bullish momentum quickly ran dry and the single currency is set to enter European trade virtually flat against the US Dollar. Meanwhile, the sentiment-sensitive Australian and New Zealand Dollar slumped along with a drop in Asian share prices. The Aussie underperformed after minutes from February’s RBA policy meeting showed the central bank saw scope for additional rate cuts and reckoned that a mild inflation outlook gives scope for future easing if demand growth proves weaker than expected.
At first glance, this seems counterintuitive considering the degree to which Greek bailout negotiations preoccupied risk appetite trends over recent weeks. Indeed, one might expect that the final emergence of a deal would boost risk-taking and the Euro alike. However, as we argued two weeks ago and on numerous occasions since, a Greek default has not presented a significant danger to global markets since December. At that time, the ECB pumped enough cash into EU banks through its 3-year LTRO facility to effectively prevent a credit squeeze. This meant that worries about the looming March 20 deadline when Greece would run out of cash to pay for maturing debt obligations were reflexive rather than rational.
With that in mind, we suggested that a bailout announcement would not generate a lasting boost to risk appetite, with the spotlight quickly shifting to the dismal outlook for global economic growth. Economists’ median world GDP expectations for 2012 have been sinking precipitously since early August, with global output expected to a meager 2.13 percent to yield the weakest performance since the end of the Great Recession three years ago. Against this backdrop, renewed risk aversion appears to be the path of least resistance. Needless to say such an outcome bodes well for haven currencies, with the US Dollar expected to fare particularly well considering it is the only major safety-linked unit in the FX space (the others being the Japanese Yen and the Swiss Franc) unburdened by intervention from domestic authorities.
Asia Session: What Happened
GMT |
CCY |
EVENT |
ACT |
EXP |
PREV |
0:30 |
AUD |
Reserve Bank Board February Minutes |
- |
- |
- |
2:00 |
NZD |
RBNZ 2-Year Inflation Expectation (1Q) |
2.5% |
- |
2.8% |
4:30 |
JPY |
All Industry Activity Index (MoM) (DEC) |
1.3% |
1.5% |
-1.0% (R+) |
Euro Session: What to Expect
GMT |
CCY |
EVENT |
EXP |
PREV |
IMPACT |
7:00 |
CHF |
Trade Balance (CHF) (JAN) |
2.5B |
2.01B |
Low |
7:00 |
CHF |
Exports (MoM) (JAN) |
- |
6.1% |
Low |
7:00 |
CHF |
Imports (MoM) (JAN) |
- |
7.6% |
Low |
8:00 |
CHF |
Money Supply M3 (YoY) (JAN) |
- |
7.7% |
Low |
9:30 |
Public Finances (PSNCR) (£) (JAN) |
-24.7B |
22.9B |
Low |
|
9:30 |
GBP |
Public Sector Net Borrowing (£) (JAN) |
-9.1B |
10.8B |
Low |
9:30 |
GBP |
PSNB ex Interventions (£) (JAN) |
-6.3B |
13.7B |
Low |
Critical Levels
CCY |
SUPPORT |
RESISTANCE |
1.3175 |
1.3346 |
|
1.5829 |
1.5902 |
--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com
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