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Hopes of Greek Government Spur Short Covering Rally in Euro

Boris Schlossberg, Director of Currency Research, GFT

Top Stories

  • Chinese data misses
  • UK PPI mixed
  • Nikkei off -0.63% Europe -0.18%
  • Oil at $96.28/bbl
  • Gold at $1578/oz.

Overnight Eco

  • EUR German Consumer Price Index (MoM) 0.2% vs. 0.1%
  • GBP Producer Price Index Input n.s.a. (MoM) -1.5% vs. -0.9%
  • GBP Producer Price Index Output Core n.s.a. (MoM) 0.7% vs. 0.4%

Event Risk on Tap

  • USD Producer Price Index (MoM) expected at 0.0%
  • USD Producer Price Index Ex Food & Energy (MoM) expected at 0.2%
  • USD U. of Michigan Confidence expected at 76.4
  • CAD Unemployment Rate expected at 7.3%
  • CAD Net Change in Employment expected at 10.0K

Price Action

  • USD/JPY rises 79.0
  • AUD/USD bounces after testing lows at 1.0020
  • GBP/USD quiet as data has little impact 1.6120
  • EUR/USD bounces as 1.2900 holds for now

After plumbing fresh lows in Asian session trade risk FX bounced in midmorning European dealing on speculation that Greece may cobble together a working coalition government without resorting to another Parliamentary election. Earlier in the session weak Chinese economic data and a massive unexpected loss from JP Morgan kept risk FX under pressure with EUR/USD coming within a few points of the 1.2900 barrier while Aussie drifted lower towards parity. JP Morgan reported a trading loss of more than -2 Billion dollars in credit derivatives as a result of hedge gone wrong by its CIO office in London.

Meanwhile in China industrial production weakened to it lowest level in nearly a decade printing at 9.3% versus 14.1% eyed. Retails Sales were also softened to 14.2% versus 15.1% forecast while fixed investment slipped to 20.2% versus 20.5% and CPI came in line at 3.4%. The data showed that Chinese growth is clearly slowing and may weaken further if the situation in Europe deteriorates further dampening demand from China’s largest export market.  

However risk FX reversed its losses after Greek officials reported that chances of a coalition government that would encompass conservatives, moderates and socialists and would have a two year mandate were increasing. Although the prospect of some political stability in Greece eased investor concerns, it still remains to be seen if any future Greek government  will abide by the bailout terms set by the Troika. Nevertheless, the  news helped to calm the credit markets and the well subscribed Italian bond auction which placed 10 Billion euros at bid to cover ratios of 2.49 from 1.81 the period prior and yields of 0.865% vs. 1.249% all helped to firm up risk assets as the night progressed.

In UK the PPI data printed mixed with input declining by -1.5% vs. -0.9% eyed while output rose to 0.7% from 0.4% forecast. The drop was largely due to sharp decline in oil prices. Output prices remained elevated at 3.3% on annual level, but were still at their lowest pace of growth since 2009.  The news was relatively neutral to any future BOE monetary policy considerations and had little impact on pound trade as the pair remained near its session lows at 1.6120.

In North America today the markets will get a glimpse of the US PPI data, U of M survey and Canadian jobs report. However, the focus will likely remain in JP Morgan as traders try to assess the long term impact of the large trading loss the bank has suffered. For now the reaction has been relatively contained, but if US investor begin to sell off the financials as the day proceeds risk FX will likely return to session lows with EURUSD testing the 1.2900 barrier while Aussie probes parity.    

FX Upcoming

Currency GMT EST Release Expected Prior
USD 12:30 8:30 Producer Price Index (MoM) 0.0% 0.0%
USD 12:30 8:30 Producer Price Index Ex Food & Energy (MoM) 0.2% 0.3%
USD 13:55 9:55 U. of Michigan Confidence 76.4 76.4
CAD 12:30 8:30 Unemployment Rate 7.3% 7.2%
CAD 12:30 8:30 Net Change in Employment 10.0K 82.3K