Good Morning

Continuing with Julius Caesar theme, it was no surprise yesterday that there was no agreement from Greece’s meeting of finance ministers. Neither side can even agree on what is up for negotiation. Germany had taken the calculated risk that Greece has more to lose than they have, so have chosen to hold tight. For their part, they know that giving Greece the negotiating room beyond the Troika will open up the doors to further anti-austerity movements in the EU (Spain, Portugal) and they fear they will be the ones paying the price. That also amounts to electoral suicide domestically. The market is taking the view that Greece is the one that is going to blink first (we hope). EURUSD is comfortably above the lows yesterday seen at 1.1280. Ultimately, the key difference between the two sides is that Greece does not want to commit to the policy conditionality specified under the existing program, while the European side is requesting the opposite. The European side is offering a technical extension of the existing program with the Greek side desiring maximum flexibility and the least amount of up-front commitments attached to completing the program review.
All eyes now focused on Wednesday’s bi-weekly ECB review of the ELA limits of Greek banks. In the event of failure, we would expect the ECB to become more explicit on the timing of when ELA funding would be withdrawn or capped. And that my friend is a disaster waiting to happen. Could we actually see GREXIT a reality. A giant tsunami that will have many casualties.

Overnight, the AUS is the main standout from overnight trading, having weakened back down to the 0.7650 level (recovered to 0.7675 as I write this) in the wake of the latest employment data. The unemployment rate jumped up to 6.4% (from 6.1%) with full time employment falling by 28k in January. The Aussie is now much closer to the levels prevailing in the wake of the rate cut seen earlier this month and the weaker tone in some way validates the RBA’s precautionary 0.25% easing.

Going into today’s quarterly Inflation Report, sterling has been relatively resilient above the 1.50 level on cable. The issue for the Bank will be convincing markets that the fall in headline inflation is temporary and the bigger picture still favours recovery and an eventual rate hike. As ParityFX has stated many times, the UK will FOLLOW the US in hiking rates and therefore we see that coming towards the end of Q3. EURGBP has fallen back slightly this morning from 0.7415 (1.3485) to 0.7460 (1.3404) ahead of the report by the Gov. of the BOE. We still think GBP will follow the USD’s lead and eventually BREAK through the key support level at 1.5000….I am afraid to say, exporters you NEED TO HEDGE you forward cash flow now and avoid any nasty shocks.

Nigeria, together with other EM currencies has seen the NGN fall out of bed with a proper bump. Falling through the key 200.00 level the currency  is currently trading around 204.00 levels. The recent announcement that the elections are going to be postponed by 6 weeks and the falling oil price has seen the NGN “taken to the cleaners”. The market has fallen out of love with the NGN and like the RUB, it is being thrown to the sharks. ParityFX has been advising her clients for month’s to hedge any USD needs as we saw the currency devaluing….and this has happened. Having said that you still have time to hedge and cover you FX forward requirements. As always ParityFX is here to lend a helping (and MUCH CHEAPER) hand.

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