Dollar Trades Higher Ahead of Greek Decision

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The U.S. dollar is trading slightly higher against all of the major currencies this morning with the exception of the British pound. The lack of big moves in the FX market can also be seen in stock futures, which are currently flat after yesterday’s sharp rally. The focus continues to be on the housing market at the front of the week with housing starts and building permits being the only pieces of U.S. data on the calendar. Homebuilders broke ground on new projects for the third month in a row with starts rising 3.6% to a 4 year high in October. What’s particularly encouraging about this increase is that it follows a very strong month for both housing starts and building permits. Unfortunately permits still fell 2.7%, which is not terrible considering that they increased 11.1% the previous month. As we have noted in recent reports, while low interest rates and stronger consumer confidence provided underlying support to the housing market, a full blown recovery in housing is not expected until the recovery in the economy gains momentum.

Meanwhile even though the euro is also trading lower against the dollar, the recovery in EUR/USD after Moody’s downgraded France has been remarkable and the optimism comes from the hope that Euro-area Finance Ministers will approve the next bailout payment for Greece later this morning. The meeting will begin at 11am ET / 16 GMT with an announcement to be made within a few hours. Most “experts” expect Finance Ministers to go through with the disbursement but there’s still a possibility that a deal will not be reached. In fact, Eurogroup President Juncker expressed a bit of skepticism that a deal may not be done tonight. The most contentious topic is debt restructuring and we believe further talks will be needed. While the EUR/USD will rally in relief if aid disbursement is made, removing the immediate risk of a default for Greece, traders should not expect the country’s problems to fall off our radar because debt sustainability talks will keep Greece in the headlines.

Kathy Lien
Managing Director

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