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Risk FX Rallies on Hopes of Greek Deal

Boris Schlossberg, Director of Currency Research, GFT

Top Stories

  • PSI deal look closer to reality sending risk higher
  • Australian employment contracts for 3rd month out of 4
  • Nikkei up 2.01% Europe up 1.46%
  • Oil at 107/bbl
  • Gold at $1702/oz.

Overnight Eco

  • AUD Employment Change (FEB) -15.4K vs. 5.1K
  • AUD Unemployment Rate (FEB) 5.2% vs. 5.1%
  • JPY Gross Domestic Product (QoQ) (4Q F) -1.8% vs. -1.6%
  • CHF Consumer Price Index (MoM) (FEB) 0.3% vs. 0.2%
  • EUR German Industrial Production s.a. (MoM) (JAN) n/a

Event Risk on Tap

  • USD Initial Jobless Claims (MAR 3) expected at 350K
  • USD Continuing Claims (FEB 25) expected at 3.365M
  • CAD Housing Starts (FEB) expected at 197.5K
  • CAD New Housing Price Index (MoM) (JAN) expected at 0.4%

Price Action

  • USD/JPY at 81.40
  • AUD/USD shrugs off weak data and rallies to 1.0605
  • GBP/USD takes out 1.5825 on broad risk rally
  • EUR/USD retakes 1.3200 on enthusiasm over PSI

Risk staged a very strong rally in early European trade today as currency markets became more confident that the Greek government will be able to enact its debt swap deal before the deadline of 6:00 GMT tomorrow morning. The latest rumors in the market suggested that the PSI deal saw participation rates of 75% or higher and may even reach the voluntary target of 90% thus avoiding a possible CDS event.

Risk FX was broader across the board with EUR/USD recapturing the 1.3200 figure while cable soared above 1.5800 as the short squeeze continued throughout the European morning session. Focus will now turn to the ECB press conference at 13:30 GMT with traders eagerly awaiting   Mario Draghi’s Q and A. Mr. Draghi is expected to announce that the ECB will not offer any additional LTRO measures which could help the euro rally further on relief that the ECB will no longer expand it balance sheet. However, if the ECB chief leaves open the possibility of further accommodative policy action  the rally in the euro could quickly reverse in North American trade.

Elsewhere Australian employment missed its mark printing at -15.4K versus 5.1K eyed, but the underlying data was better than the headline reading and the Aussie quickly recovered its losses. Australian employment recorded its third negative reading out of the past four months, but all of the losses came from the part time sector while full time jobs gained a respectable 12.3K. The participation rate fell to 65.2% from 65.3% the month prior causing the unemployment rate to inch higher at 5.2% versus 5.1% forecast.

The Australian data shows that the labor market is softening but is far from collapsing although momentum has clearly slowed as growth expectations in Asia Pacific region are pared back. Still, despite the recent string of softer than expected economic data the RBA may not necessarily lower rates at the next month’s MPC meeting, preferring  to see more evidence before taking policy action.

The Aussie dipped more than 30 points in knee jerk reaction to the news, but the pair quickly regained its session opening levels as   traders shrugged off the news and  the pair has rallied strongly in European trade taking out the 1.0650 level.  The Aussie has been able to hold above the 1.0500 support  despite disappointing data this week indicating that the risk trade continues  to attract investor flows on the assumption that global growth will remain positive for the foreseeable future.

In North America today the key drivers of trade will come from the other side of the pond as currency markets watch for the latest developments on the PSI deal and headlines from the ECB press conference. Investor sentiment has made a 180 degree turnaround from the dour mood that dominated dealing earlier this week, and if the headline news remains supportive risk could rally further with EUR/USD targeting 1.3250, cable eyeing 1.5850 and Aussie inching towards the 1.0700 figure as the short squeeze continues.   

FX Upcoming

Currency GMT EST Release Expected Prior
USD 13:30 8:30 Initial Jobless Claims (MAR 3) 350K 351K
USD 13:30 8:30 Continuing Claims (FEB 25) 3.365M 3.402M
CAD 13:30 8:30 Housing Starts (FEB) 197.5K 197.9K
CAD 13:30 8:30 New Housing Price Index (MoM) (JAN) 0.4% 2.5%