Market Drivers February 11, 2015

Japan on holiday leaving Asia flows lackluster
Markets quiet as all eyes on Eurogroup meeting
Nikkei closed Europe -0.39%
Oil $50/bbl
Gold $1237/oz.

Europe and Asia:
AUD Westpac survey 8.0% vs. 2.4%

North America:
No data

Another very lackluster night of trade in the FX market with Japan closed for holiday and European traders essentially on hold until 1900 GMT as they await the news of a Eurogroup meeting regarding the renegotiation of the Greek bailout.

With economic calendar barren not only in Europe but in North America as well, the only price action of note in today’s trade was the further collapse of EUR/GBP cross which hit lows not seen since 2008 as it broke below the .7400 level. The pair is under pressure not only because of the political tensions in Europe but due to sharply divergent monetary policies of the two regions.

Even without the threat of Grexit the ECB policy is likely to remain highly accommodative for the foreseeable future as the Eurozone struggles with deflation. In UK on the other hand the BOE has been decidedly more hawkish repeatedly stating that the central bank will return to normalization despite the low inflation readings. The move today may have been exacerbated by the growing angst over the crisis with Greece, but it is also reflective of the broader trend in the market as capital moves towards sterling and away from the euro.

As to Greece there is little to report as parties remain far apart, but both are clearly seeking some sort of face saving solution that would buy them time so that they could iron out a more durable long term agreement. The Greeks are seeking a 6 month bridge loan so that they can renegotiate the terms of their long dated debt by trying to turn it into a perpetual bond that require interest only payments rather than principal. Short of debt forgiveness, such a solution would be the only way to provide a structural reform to the country and allow it to return to growth.

Whether any of this can be accomplished remains to be seen as the Germans remain recalcitrant in their opposition to changes in the original terms of the bailout. Although few analysts expect it, the prospect of complete failure to reach any sort of agreement today remains quite real and such a result would no doubt put further pressure on the euro with the pair possibly sliding to 1.1200 level on any negative news.

Meanwhile USD/JPY continues to march higher with the pair within striking distance of the 120.00 level. As Europeans continue to bicker, the greenback is looking more and more attractive to investors both as symbol of security and growth suggesting that the rally in the dollar is likely to continue.

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