Forex Exchange Morning Report

Market wrap

Risk sentiment improved slightly further after an announcement during the London session that Greek politicians had agreed on austerity measures which were acceptable to the IMF/EU/ECB troika. Eurogroup head Juncker later restrained the market, pointing out that a decision on the next rescue package was unlikely at the Eurozone finance ministers' meeting currently in progress, citing the requirement for Greece's parliament to approve the measures before a rescue off er can be made. The S&P500 is currently 0.3% higher, the muted advance perhaps partly due to much of the good news (including expectations) already being priced in. The CRB commodities index is 0.2% higher (oil +1.1%, copper +1.7%, gold +0.3%). US 10yr treasury yields are 7bp higher at 2.05% after earlier probing 2.08%, and the 30yr auction was tepid. The Greek 10yr shed 20bp in yield, Portugal -18bp.

The US dollar index is slightly lower. EUR made a fresh two month high at 1.3322, supported by the positive developments in Greece. The ECB remained on hold as expected and offered no signal for rate cuts ahead but noted tentative signs of stability and confirmed looser standards for collateral ahead of the 28 February liquidity offering to banks. The BOE increased its asset-purchase program by GBP50bn, also as expected. Safe-haven yen underperformed and USD/JPY rose from 77.20 to 77.60. AUD ran out of steam after the Sydney close, probing 1.0824 several times and settling around 1.0800. NZD similarly looked tired, only managing 0.8378 before settling around 0.8360. AUD/ NZD ranged sideways between 1.2910 and 1.2945

Economic wrap

US initial jobless claims fell 15k to 358k last week, adding to the weight of evidence pointing to an improving US jobs market. Excluding a seasonally distorted reading in early January, that is the lowest level of new claims since before the start of the 2008 recession.

US wholesale inventories rose 1.0% in Dec, mostly due to auto and non-durable stocks increasing.

Canadian housing new house prices rose 0.1% in Dec holding the annual pace of gain at 2.5% yr.

ECB on hold at 1.0%. At the press conference ECB president Draghi acknowledged that the economy was very weak in Q4 but suggested there were 'tentative signs of a stabilisation in economic activity at a low level. Looking ahead, we expect the euro area economy to recover very gradually in the course of 2012... this outlook is subject to downside risks.' In January there were 'substantial downside risks to the economic outlook'. This suggests that policy is on hold for the immediate future. Draghi sounded very satisfied with the impact so far of the LTRO last December, which he credited with averting an interbank credit crunch.

Greek politicians agree on austerity measures, according to a press release from the PM's office. But there were also reports that Greece would seek a less aggressive budget deficit reduction schedule over the next few years. It remains to be seen whether the IMF/EU/ECB troika considers Greek austerity efforts sufficient to allow the next tranche of bailout payments to be made, in time for Greece to avoid a default next month.

BoE announces a further £50bn of asset purchases, taking its QE program to £325bn. The MPC 'judged that the weak near-term growth outlook and associated downward pressure from economic slack meant that, without further monetary stimulus, it was more likely than not that inflation would undershoot the 2% target in the medium term.'

UK industrial production rose 0.5% in Dec, led by a 1.0% jump in factory output. At the same time the trade deficit narrowed by £1.8bn to £7.1bn in Dec, thanks to a 0.9% export gain and a steep 4.2% import decline.

Market outlook

AUD/USD and NZD/USD outlook next 24 hours: The EZ meeting should dominate headline space this morning. Locally, there is the RBA monetary policy statement to read, NZ has electronic retail spending, and China has trade data. The technical setups remain unchanged, both currencies overbought and signalling reversals. AUD major resistance remains at 1.0840, NZD's at 0.8410.