Events in the EU continue to dictate FX price action and the markets focus. Yesterday's news that the Eurozone has reached a temporary agreement on Greece which includes considerable IMF involvement was only slightly EUR positive. The failure of the EUR to fully breakout on the back of the news, indicates that currency traders are not fully convinced that these announcements are the resolution. According to the FT, President Sarkozy and Chancellor Merkel have a draft agreement that Greece would receive bilateral loans from EU nations and IMF, should the nation come under very serious difficulties. The decision to move forward with coordinated loans would have to come from a unanimous EU member vote and the proportion of lending would be 2/3 EU and 1/3 from IMF. While the discussion is moving in the right direction, we are still concerned there are major obstacles before action is taken and markets believe the situation has actually been contained. A few stumbling blocks remain, such need for unanimous vote by EU members (vote power for Germany), market rates which will define lending costs and no bailout clause and potential IMF fiscal and monetary constraints. Interestingly (highlighting the rapid pace of developments), one of the key barriers fell today, when ECB's Trichet stated that he never remarked that the central bank has a problem with IMF participation. Overall, the announcement doesn't shake our bearish EUR view. We still believe the EUR faces downwards pressure, as we expect the markets will be disappointed as Brussels closes with no greater clarity. In Japan, the National CPI for February printed in line with expectations at -1.1% y/y vs. -1.3% prior. This was the 13th straight monthly decline. However, the pace of consumer price decline has been slowing. As expected the government, in Finance Minister Kan, immediately called for further efforts to lift Japan out of it deflationary spiral. With the USDJPY breaking above its daily cloud covering and major bearish trend resistance, we expect further JPY weakness to come. In the US session, traders will be keeping one eye on US economic data in GDP, PCE and U. of Michigan and the other on the developments in Europe.
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