Market Drivers April 21, 2015

Euro drops to 1.0650 on reports that ECB could put 90% haircut on Greek Bonds
RBA Minutes suggest CB is open to further rate cuts
Nikkei 1.40% Europe 0.65%
Oil $56/bbl
Gold $1194/oz.

Europe and Asia:
AUD RBA Minutes shows willingness to cut further
EUR ZEW 53.3 vs. 55.6

North America:
CAD Wholesale Sales 8:30

The euro came under yet more selling pressure in early European trade today on reports that some members of ECB were considering the idea of raising haircuts for Greek banks if Greece fails to comply with reform package proposals.

The Greek banking system has been essentially on life support sustained by ECB’s ELA program which has provided the banks liquidity against their suspect collateral without enforcing any haircuts. However, reports tonight suggested that some ECB members are prepared to enforce haircuts of as much as 90% in the event that Greece fails to comply with reforms demanded by the European authorities. That would in effect send the country country into bankruptcy and could precipitate a Greek exit from the euro.

So far, such talks appears to be nothing more than threats to encourage the Greek government of Alex Tsipirias to come to terms with the reforms demand by EZ finance ministers at the next meeting on April 24th in Riga. There has been no formal discussion of such policy consideration by the ECB and any move of this nature would require 2/3 majority vote by the ECB council.

However, the latest rumblings out of Frankfurt reflect the growing frustration with the slow pace of negotiation and the sense of acceptance that the Greek situation may not be reparable. The euro tumbled to a low of 1.0659 in early morning dealing but found support ahead of the 1.0650 level and stabilized as traders awaited the latest developments with Friday now looking to be a critical date in the ongoing Greek saga.

On the economic front the latest ZEW survey came in at 53.3 versus 55.6 but current conditions rose to their highest level since July of 2011 hitting 70.2. Overall the German economy is proceeding at a steady pace and respondents were generally confident of 1.8% growth going forward. This Thursday the flash PMI data will provide a better picture of conditions on the ground with markets expecting the situation to remain above the 50 boom/bust line.

With no US data in North American trade today dealing is likely to remain contained within the recent ranges but the situation with Greece remains tense and volatility could spike on any new headline on the topic.

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