Greek Bailout Agreed
O/N BULLETS
- EU finance ministers reach a deal on Greek bailout
- PSI has increased nominal haircut of 53.5% from 50%
- RBA minutes seen as mildly dovish despite indication rates are appropriate
USD
The USD weakened in a quiet session yesterday, but found some support around the 100 day moving average at 78.80. The focus remains very much on Europe, but the Greek deal seen yesterday is not quite enough to generate real risk positive enthusiasm. This will probably require more strong global data, and the light calendar today suggests another range-bound performance.
EUR
EUR/USD continues to probe to the upside as the Greek tail risk is removed. While few have any real optimism about prospects for the European economy, there is now hope that the Greek issue has been put to bed for at least a few months, and with another big LTRO available at the end of the month, there may now be scope for more risk taking and credit expansion in the euro area. Such ideas remain speculative, but the recent data has been better and the removal of tail risks should also mean the squaring of short positions, suggesting risks for the euro are on the upside. A break of 1.3350 in EUR/USD looks necessary to trigger the next round of stops, which could then see a move into the high 1.30s.
GBP
UK PSNB will be a focus today, but in spite of the slightly better trend in recent UK data, positioning may mean that any EUR gains on position squaring have more impact on EUR/GBP than GBP/USD. The 200 day moving average (currently 1.5916) has proved a difficult level for GBP/USD in recent months, and would probably require either significant positive news on the UK economy or a major upside break in the EUR to break it convincingly. On a poor PSNB number, the stops in EUR/GBP around 0.8410/20 may be under more threat.
Oil
The Brent oil price has reached the highest level since May 2011, and so has positioning on the IMM. At this stage there is no real reason to expect a reversal, given the tensions surrounding Iran, but supply conditions themselves are not currently problematic. However, we would warn that while the higher oil price has been correlated with a risk positive move of late, it was one of the reasons behind the economic slowdown in Q2/3 last year that led to risk weakness. Further oil price strength from here, particularly if supply related, would be far less clearly positive for risk.
Spotlight – EUR bulls should look at EUR/CHF – In the short run, the heavy short positioning in EUR/USD may mean that EUR strength is best expressed through EUR/USD rather than other EUR crosses, given that any EUR strength at this stage is likely to be corrective – i.e. related to squaring of short positions rather than the establishment of long positions. But there isn't much reason to be taking long EUR/USD positions from a longer term perspective. Value wise, the USD remains cheap on a long term basis, and while there are good reasons for this, there is a lot more upside in looking for other funding currencies. The yen has been the favourite victim of late, but the CHF is the most expensive currency and given the explicit protection to short CHF positions provided by the SNB, risk/reward favours EUR/CHF longs over both EUR/USD and EUR/JPY
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