Intraday Market Thoughts

USD Stabilizes on Euro Fatigue & Greek Deal Rethink

by Patrik Urban
Feb 10, 2012 12:42

Greek deal and ECB uncertainty; deflation in Switzerland; UK PPI rose m/m but declined y/y; LTRO estimates. Market turns to US and Canadian trade balance data and UoM consumer confidence

The USD is trading higher against all majors except GBP. Major European equity indices are in the red by about 0.4% to 0.9%. The relative strength loser is NZD followed by AUD.

Doubts about Athens' ability to actually implement all of the agreed on measures and the credibility of the Greek deal sent USD higher as the next part of the financial aid will be released only after the Greek parliament approves the austerity measures during its weekend meeting.

Another source of uncertainty emerges from the ECB and its involvement in the Greek debt deal. ECBs Draghi denied the central bank would take losses or forego some profits, which would be essential in freeing up funds for Greeks to meet their debt/GDP target by 2020.

Deflation in Switzerland grows deeper as January CPI printed -0.4% from -0.2% m/m which is -0.8% from -0.7% y/y. Continued deflation should strengthen calls for weaker Franc and cement the 1.20 EURCHF floor. Surprisingly, EURCHF is actually lower after the release, trading around 1.2095.

UK PPI input prices rose 0.5% from -0.6% in January m/m but declined to 7% from 8.9% y/y. Output PPI was 0.5% m/m from previous -0.2% which is 4.1% from 4.8% y/y. Annual input PPI reached a lowest point since 11/2009 and annual output PPI is at lowest level since 11/2010.

UK yield curve is significantly steeper today as BOE decided yesterday to buy more short term than long term bonds.

Because the ECB changed collateral criteria, banks started adjust their assessments for the second round of LTRO on 2/29. The estimated upper limit of the ranged increased to EUR 450 to 700 bln. Mario Draghi said yesterday that projections are for a number similar to December allotment which was EUR 489 bln.

The NY session starts at 8:30 am ET with trade deficit that is expected to widen in December to USD -48.1 bln from previous USD -47.8 bln followed by UoM consumer sentiment at 9:55 am which is seen lower in February at 74 from 75.

Canadian trade balance is due at 8:30 am and should reach a surplus of CAD 0.7 bln in December, slightly lower from November's CAD 1.1 bln.

Market volatility could also increase at 12:30 pm when FED chairman Bernanke delivers a speech on housing market.

Oil respected its January trendline resistance at 100, now heading towards the 98.20 target in the Premium Intermarket Insights. EURGBP longs and AUDNZD remain in progress, USDJPY and AUDUSD short stopped out, 2nd EURUSD long missed target by 8 pips. . Gold and USDCAD trades remain in progress. For direct access, click here:


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