Risk Sentiment Eases As Eurogroup Fail To Approve Greek Deal

O/N BULLETS

• European Finance Ministers fail to approve Greek deal and make more demands
• RBA Minutes indicated scope for further easing should growth or inflation weaken materially
• China imports fell by larger than expected by -15.3% y/y in January and exports fell -0.5% y/y.

USD

The USD edged lower yesterday as risk sentiment remain well supported following news that Greek party leaders had agreed on the terms of the second bailout. But with the Eurogroup failing to approve the Greek deal, USD edged higher overnight. Today's US trade numbers and U. of Michigan confidence indicator will unlikely draw much market attention with risk appetite largely dominated by headlines from Greece. We expected USD to remain within a range with an upside bias as uncertainty over Greece still remains.

EUR

EUR/USD edged lower after making new highs on news the European finance ministers failed to approve the second bailout for Greece. Greece is required to detail a further EUR325mn of spending cuts and reforms to be backed by a parliamentary vote (expected on Sunday) with all party leaders signing the agreement before reconvening next Wednesday for another Eurogroup meeting. The initial Greek PSI deadline for the 13th looks to be pushed back now. For today, EUR/USD maybe under some pressure but will likely remain resilient with EUR having been able to shake off negative news over the past few weeks. EUR/USD will likely remain within a 1.32- 1.33 range for today as we continue to wait for more progress from Greece.

GBP

The BoE announced an additional £50bn worth of asset purchases at yesterday's meeting as widely expected. GBP/USD moved marginally higher following the announcement, reflecting some market relief more QE wasn't announced. GBP/USD will likely continue to move with EUR/USD and market sentiment, but with EUR/USD likely to remain resilient from news overnight, EUR/GBP could hold around the 0.84 level.

AUD

AUD/USD suffered the most overnight as risk sentiment softened following news from Europe. AUD will likely be most vulnerable to downside moves in a risk-off environment more so than the other risky FX such as the scandies or CAD as AUD has been one of the best performers this year, and has been expensive for sometime.

Spotlight – Norway CPI likely to remain soft – Headline inflation for Norway weakened sharply in December. However underlying inflation has remained relatively resilient. Today's numbers are expected to improve marginally. Norges Bank cut rates by 50bp at its December meeting ‘in order to guard against an economic setback and even lower inflation'. Underlying inflation is expected to remain within the Norges Bank projected 1-1.5% range. Should inflation surprise on the downside this could increase the probability for further rate cuts and will no doubt weigh on NOK performance. The next Norges bank meeting is mid March.