Greek Legislation To Threaten Risk Sentiment
O/N BULLETS
- Greek PM Papademos says the debt swap will be completed around March 10
- Greece submit legislation whereby CACs can be activated if the participation rate is above 66.66%
- China HSBC flash PMI rose to 49.7 in February up from 48.8 in January.
USD
The USD remained range bound as EUR/USD struggled to make much progress following the announcement of a Greek deal. There's little on the calendar today, and with EUR/USD expected to hold within a range, the USD index will likely follow. The USD has been well supported around the 78.80 level and this will likely hold in the absence of a real risk positive move.
EUR
EUR/USD remained in the range yesterday as the market unconvinced by details that accompanied the Greek deal. The announcement indicated there was implementation risk ahead. The participation rate on the upcoming PSI is still not clear. Overnight news of legislation that CACs can be triggered if the participation rate is above 66.66%, otherwise investors will be not be forced to accept the swap which would mean Greece will have to look elsewhere to fill the funding gap. This could weigh on risk sentiment today, but we expect EUR/USD will continue to trade within the 1.3190-1.3300 range. PMIs from the Euro Area could provide some support to EUR should they continue to improve, and could set the tone for the day.
GBP
UK PSNB was better than expected yesterday showing a surplus of £7.8bn, but this had little impact on GBP which suffered along with the other risky FX. Today there could be some focus on the BoE MPC minutes. It will unlikely reveal anything more than what we already know from the Inflation report earlier this month, and will likely indicate risks will be more finely balanced going forward. EUR/GBP edged higher yesterday, but failed to break through the key resistance around the 0.8410/20 area, we expect this to hold in the absence of a EUR rally.
AUD, NZD, CAD
AUD/USD was hit hardest yesterday as risk sentiment softened following the announcement on the Greek deal. AUD underperformed compared to the other commodity currencies, NZD and CAD. AUD performance was perhaps also hampered by the RBA minutes which indicated that there was scope for further cuts should demand conditions weaken materially. Should risk sentiment remain subdued today, AUD could continue to struggle.
Spotlight - USD/JPY edging higher - USD/JPY is up almost 5% since the beginning of the month, now trading through the 80 level. While 2y nominal yield spreads have moved in favour of the USD (chart below) and can partly explain the move in spot; BoJ announcement of more QE and setting an inflation target last week has provided some support for USD/JPY. We are skeptical how much higher the cross can go based on BoJ action and there looks to be some resistance around the 80.20-80.40 area. USD/JPY could be approaching a sell here but it will be hard to argue this case should yield spreads continue to move in favour of USD.
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