Market Brief
EUR complex was hit hard by the news that the ECB would take a further hard stance on Greece. ECBs Governing Council lifted the current waiver of a minimum credit rating requirements for debt instruments issued by Greece. The waiver had allowed Greece debt to be used in the Eurosystem monetary policy operations despite the fact they were below the minimum credit rating requirements. In a statement, the Governing Council said its decision is based on the fact of a possible failure of the program review (due to Greece demand for enegotiations). EURUSD went into freefall from 1.1420 to 1.1347 the to 1.1305 in early Asian trading before marginal demand returned. EURGBP fell to 0.74500 and EURCHF stabilized between 1.0475 and 1.0505 after the ECB-Greece news bearish move. The ECB action proves that while smiling politicians make excellent headline (watch Germany's Wolfgang Schaeuble and Greek finance minister Yanis Varoufakisthere meeting today) there is still an incompatible divide between Greek and EU / Troika authorities. In addition, German Chancellor Angela Merkel indicated that the current diplomatic road show was failing to win over supporters in Europe stating, “I don't think that the positions of the member states within the euro area with regard to Greece differ, at least in terms of substance.”
In Asia's, regional indices were mixed in response to the unexpected PBoC RRR of 50bp yesterday. Surprisingly the Shanghai composites fell 1.18% followed by the Nikkei 0.98% drop. USDJPY was range-bound between 117.05 and 117.45. The fall in oil prices did little to support Asia FX as USD was broadly stronger. Australia's retail sales increased 0.20% m/m in December, slightly below 0.30% expected but above rise of 0.1% in November. Real retail sales jumped 1.50% q/q above expected gain of 1.10% q/q . AUDUSD found buyers on the positive news, after the ECB-Greece sell-off, biding the pair to 0.7796. But after this week's RBA OCR cut and growing expecation for additional cuts, AUD bullish momentum feels strained.
Swiss consumer confidence fell to -6 from -11 but above expected rise of -13%. We remain bearish in EURCHF despite possible SNB FX interventions, and taget a move back to parity.
Today's BoE rates decision is likely to be a non-event as no policy changes is widely expected and therefore no accompanying statement will be releases. We expect GBPUSD bearishness has a bit more to run, heavy supply at range top (1.5279) should keep current monument contained. In Europe, German industrial orders are likely to increase by 1.5% m/m rise, after falling by 2.4%m/m in November.
