Market Drivers February 17, 2015
Greek talk go nowhere but euro shrugs it off
ZEW sentiment improves as EUR/USD touches 1.1400
Nikkei -0.10% Europe -0.74%
Europe and Asia:
GBP CPI 0.3% vs. 0.3%
EUR ZEW 53 vs. 55.4
USD Empire 08:30
Euro shrugged off the never ending saga of Greece’s debt negotiations with the Eurogroup and staged a vigorous rally in morning European dealing rising above the 1.1400 level as it was boosted by improving economic data from the region.
While the wrangling in Brussels continued the markets chose focus on better economic news coming out from Italy and Germany as the EZ continues to show signs of improvement due to lower exchange rates and lower energy costs. Italian Trade Balance rose to 5.76B versu 3.2B eyed recording its second best reading in more than 2 years.
Meanwhile in Germany the ZEW reading jumped to 53 from 48.4 the period prior. This was the best result in a year and a fourth consecutive rise in as many months. The news suggests that investors are feeling considerably more positive about the prospects for growth in the Eurozone as they anticipate the benefits of QE from ECB as well as the stimulus from exchange rates and lower energy prices.
The true tell for the markets will occur on Friday when currency traders get a glimpse at the flash PMI readings for the region which will provide the most updated view of conditions on the ground. If the news surprises to the upside the EUR/USD could take out the 1.1500 figure as sentiment towards the unit continues to improve.
As to Greece, it appears that the parties will continue their standoff until the last possible moment with February 28th deadline looming as the final due date. For now however, the markets have assumed that some sort of deal will be struck and have decided to focus on the broader EZ issues instead.
Elsewhere in UK the CPI data came in generally in line with expectations with food, non-alcoholic beverages and furniture all recording massive declines in price levels as lower energy costs continue to wash through the system. The data however did not have much of an impact on cable as BOE has already communicated that it intends to look past the temporary declines in prices and expects that the next move in rates will be up. Sterling rose in the aftermath of the release but continues to meet resistance at the 1.5400 level for now.
Turning to North America the calendar is relatively quiet with only the Empire Manufacturing on the docket with markets looking for a slight pullback. The primary flow however is likely to come from the equity market and if the risk on mood continues as the day proceeds USD/JPY could recapture the 119.00 level once again.