The USD buying continued overnight and indeed accelerated, as China threw some contentious comments into the Eurozone debate. The Greek issue clearly remains in the forefront, as EU officials convene in Brussels today for a two-day summit. At this point, a solution seems a far way off, as decision makers remain divided from an economic standpoint as well as political. German chancellor Merkel provided additional bailout squashing rhetoric, saying there wouldn't be any concrete financial recues plan for Greece in Brussels and that any IMF assistance should only be used as a last resort. Meanwhile, what we consider the biggest barrier to an IMF plan was articulated by ECB Governing Council Member Smaghi harsh words for any IMF rescue measure, stating that this would put the EUR in jeopardy. Those who are interested in economic and monetary stability in Europe should resist going to the IMF. To put it provocatively: People should go to the Constitution Court if the IMF is called upon, but not when the EU organizes bilateral assistance. He also stated that he believes bilateral assistance could work within the EU treaty. Also adding to evidence that forward progress would be stymied was a report from the German newspaper Die Welt, that preparations of the Brussels summit are chaotic as Greece is not on the official agenda and separate meeting incorporating the 16 euro area nation must quickly be organized. Yesterday's downgrade of Portugal by Fitch, was the initial trigger for a massive sell off in EURUSD as the risk of contagion (which had seem to be lessening) was reintroduced to the market psyche. In the Asian session, PBOC's Zhu commented that the Greek debt crisis was the tip of the iceberg and other EU countries were at risk. The EURUSD, which was hanging precariously around 1.3330, collapsed to 1.3284. European Council Summit of today and tomorrow might provide some buzz worthy quotes, but we doubt any true clarification or details will be provided and see any relief rallies as opportunities to short EURUSD. EURCHF has held up surprisingly well, considering the pressure on the single currency. SNB Vice President Jordan provided some verbal intervention yesterday stating the central bank would move to halt any excessive appreciation of the CHF. Today in New Zealand, the Q4 GDP hit consensus square on at 0.8% q/q vs. prev. 0.2% and 0.4% y/y vs. prev. -1.3% (as expected NZD reaction was muted). These figures are consistent with an RBNZ starting hike this summer. In Australia, RBA Deputy Governor Lowe sounded very hawkish stating that excessive delay in adjusting policy runs the significant downside of moving too late. He then went on to say that it is likely that interest rates will need to continue their gradual move towards more normal levels. And on a final note, we have been patiently waiting for USDJPY to breakout of daily ichimoku cloud cover which clearly did yesterday. Judging from expected US rate path (hawkish comments from Hoenig yesterday) and BoJ recent QE announcement, we believe USDJPY is clear to move higher. For today...we wait for news from Brussels.
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