Forex Market Update: The EUR Finds Its Feet As Greece Reveals Details Of Its Fiscal Austerity Measures

BOE and ECB meetings today – Bank of England has more potential to surprise

HEADLINES - PREVIOUS SESSION

US Feb. Challenger Job Cuts out at -77.4% y/y vs. -70.4% expected
US Feb. ADP Employment Change out at -20k, as expected vs. revised -60k prior
US Feb. ISM Non-manufacturing out at 53.0 vs. 51.0 expected and 50.5 prior
JP Q4 Capital Spending out at -17.3% vs. -18.4% expected and -24.8% prior
AU Jan. Trade Balance out at –A$1176m vs. –A$1600m expected and revised –A$2174m prior

THEMES TO WATCH - UPCOMING SESSION

HK Retail Sales (0830)
Denmark Unemployment Rate (0830)
UK Halifax House Prices (0900)
EU Euro-zone GDP (1000)
UK BOE Rate Announcement (1200)
EU ECB Rate Announcement (1245)
CA Building Permits (1330)
US Non-farm Productivity (1330)
US Unit Labour Costs (1330)
US Initial Jobless Claims (1330)
EU ECB's Trichet News Conference (1330)
CA Ivey PMI (1500)
US Factory Orders (1500)
US Pending Home Sales (1500)

Market Comments

The details of the Greek austerity plan helped put a floor under the EUR though related comments took some of the wind out of the rebound. While the EU is urging coordinated backing for Greece, Germany in particular still appears reluctant to support. The Greek plan includes a 2% hike in VAT rates, cuts in public sector bonuses, increases in taxes on fuel, tobacco and alcohol as well as a freeze on state-funded pensions for this year. The measures are expected to slash the deficit by €4.8 bln and late in the session Moody's commented it would maintain their A2 rating if the austerity measures were acted upon.

GBP continued its rebound from oversold conditions on the back of a strong services PMI number in Feb and has managed to crawl it way back to the point where it fell off the cliff on Monday. However today's MPC meeting will likely cause some uncertainty, although no change in rates is expected. An extension to QE measures will undoubtedly put the skids under GBP though we do not think that that such an outcome is likely, given the current elevated CPI levels and the risk the a GBP fallout would result in a technical easing far greater than the BOE is comfortable with.

On the data front, the ADP employment report showed private-sector payrolls falling by 20k, in line with expectations, but a sharp downward revision to the previous month's data put a dampener on any positives. The ISM non-manufacturing index was quite firm, rising to 53.0 with all sub-components posting gains. More encouragingly, the employment sub-index showed a sizeable gain of 4 points to 48.6. The Fed's Beige Book showed economic conditions continued to improve though February's bad weather has clouded some of the data inputs.

The Asian session was a very moribund affair with currencies trading in tight ranges. Of the data releases, Australia's trade deficit narrowed to A$1.18 bln in January from A$2.17 bln the previous month and was better than the consensus estimate. No real reaction in the AUD with a convincing move above the 100-day MA so far proving elusive.

Japan enjoyed some better data as well, for a change, as capital spending in Q4 was not as bad as feared. Capital spending fell 17.3%, better than the -24.8% last time out and beating forecasts of -18.4%. No reaction in JPY crosses though with USDJPY confined to a 20 point range all session.

Looking ahead, on the data front the European session features Q4 Euro-zone GDP data followed by interest rate announcements from the Bank of England and the ECB. As mentioned above, the BOE meeting is likely to stir up more interest with possible QE chatter to keep things uncertain. While the BOE may still be considering further QE measures, the ECB could announce the next steps in its process of withdrawing liquidity provided during the financial crisis. The US session has Canada building permits scheduled along with US unit labour costs, weekly jobless claims, factory orders and pending home sales.

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Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by Saxo Bank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis do not occur as anticipated.

Saxo Bank utilizes financial information providers and information from such providers may form the basis for an analysis. Saxo Bank accepts no responsibility for the accuracy or completeness of any information herein contained.

Any recommendations and other comments in Saxo Bank's analysis derive from objective fundamental macro economical and company specific calculations, statistical and technical analysis, and subjective general market assessment.

If an analysis contains recommendations to buy or sell a specific financial instrument, such recommendation should be seen as Saxo Bank's opinion that the specific instrument will respectively outperform the relevant market or underperform compared to the market. Saxo Bank's recommendations should statistically correspond to an even distribution between buy and sell recommendations.

The recommendations may expire promptly due to market volatility and in general, Saxo Bank does not anticipate its recommendations to be valid more than one month. An analysis will be updated if and only if a market development or other issues relevant to the analysis render a new analysis on the same topic relevant. Saxo Bank's analysis does not cover any specific financial product over time but only products which Saxo Bank's strategy team finds it important to cover at any given point in time.

In order to prevent conflicts of interest, Saxo Bank has established appropriate business procedures, incl. procedures applicable to research and analysis to ensure objective research reports. Saxo Bank's research reports have not been discussed with the parties, e.g. issuers of securities, mentioned in the analysis.

Saxo Bank is under supervision by the Danish Financial Supervisory Authority. Saxo Bank does not engage in corporate finance activities and accordingly, Saxo Bank's employees, incl. the persons responsible for an analysis, do not receive remuneration associated with investment banking transactions.

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