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Publication date: 30 January 2012
Author: Andrew Timothy Robinson, Saxo Bank
Greece to surrender budgetary control? The debate is on…
The EUR opened the Asian session little-changed Monday, against Friday’s US close, though there was a 50-point down-move during the session on (relatively old) news that Germany was proposing that a budget overseer be commissioned in Athens (essentially forcing Greece to give up sovereignty over tax and fiscal policy).
This was naturally received with great displeasure in Athens with finance minister Venizelos saying such a move would improperly force his country to choose between “financial assistance” and “national dignity”. The rest of the session saw the EUR marooned just below 1.32 versus the dollar. The “risk-off” trade filtered through into other currency pairs with S&P futures also slightly lower leading the way.
Looking ahead, hope still springs eternal that a Greek debt swap deal announcement is imminent with latest rumours suggesting early this week and with a lower coupon rate of 3.6 percent.
We start the week with yet another EU Heads of State Summit with negotiations of the fiscal compact the main item on the agenda. As John pointed out on Friday, the run up has seen mostly pessimistic press and lowered expectations though the concept of centralizing budgetary powers may be signed (are you sure, Greece?). Without this, we could face another non-event. With Italian 10-year yields tumbling further to below 6 percent on Friday, it is opportune that they have 5- and 10-year auctions today.
During Friday’s late session the EUR was able to overcome downgrades for Italy and Spain by Fitch (now in line with S&P and Moody’s) and also Belgium, Slovenia and Cyprus. The EUR’s cause was helped by a below expectation Q4 US GDP report which put a dent in the dollar. The US economy accelerated to 2.8 percent (annualized) in the fourth quarter of 2011, just shy of the 3 percent expected. The miss was mostly due to lower than expected private consumption, which only grew at 2 percent vs. 2.4 percent expected.
- US Q4 Advance GDP out at +2.8% q/q vs. 3.0% expected and 1.8% prior
- US Jan. Final Michigan Confidence out at 75.0 vs. 74.0 expected and 74.0 prior
- NZ Dec. Performance of Services Index out at 50.6 vs. revised 56.2 prior
- UK Jan. Hometrack Housing Survey out at flat m/m, -1.6% y/y vs. -0.2%/-2.1% prior resp.