When the smoke cleared from yesterday's EU Summit, investors were left with a thin watered down commitment to take determined and coordinated action, if needed, to safeguard financial stability in the Euro area as a whole and will propose necessary additional measures. And EU official's response to markets demand for greater details was that Greece had not asked for assistance, which just skinks of arrogance. The EURUSD come under significant selling pressure, falling from 1.3800 to 1.3600 in the course of a day. In addition, any specific aid package for Greece will have to wait until the Ecofin Council, which meets on Feb. 15 and 16. Today, when Guardian article implied that German Chancellor Merkel was hindering attempts by the EU to get Germany to fund a Greece rescue package, the EURUSD dropped another 60 pips. While European 5y CDS spreads over the past few days have tightened, we expect the euro to continue to weaken, as sovereign concerns remain a significant pressure in the Eurozone and no solution forthcoming. Also weighing on risk appetite, was news that China raised its reserve requirements by 50bp. Right now, it doesn't seem like benign CPI figures that printed this week were enough to pause PBoC efforts to reign in on liquidly. In New Zealand, retail sales disappointed markets by printing at 0.0% m/m vs. 0.6% exp. and the Ex-Auto and Ex-Inflation figures both were worse than expected at -1.8% m/m and 1.0% q/q. With strong numbers coming from Australia and New Zealand cooling down long AUDNZD are becoming very attractive. US retail sales will be released today, after being postponed from yesterday. Markets were expecting a 0.4% rise in retail sales but there is decent evidence that the market is underestimating the strength of the US consumer and we believe the skew is to the upside.
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