It’s all hotting up in mainland Europe. While the Greeks appear to be capitulating, they are now asking for an extension – clearly a case of the age old lesson about being careful what you promise your voters, as the reality of governing will always bite you on the behind – Germany appears to be playing hardball and has rejected the Greek finance minister’s request, ironically making a reference to Trojan horses!
You can access the link from Reuters here: http://www.reuters.com/article/2015/02/19/eurozone-greece-request-idUSL5N0VT2S720150219
As inflammatory as the German rejection might appear to be, it seems when you fully consider the context of the letter, that there is some clever politicking going on by the Greeks, as they play to several galleries. The Greeks are indeed trying to frame the negotiations as a way to review the terms of the loan. This is clearly unacceptable to some of the creditors. The Eurogroup meeting today, which would normally be conducted via teleconference, will be held in Brussels and will be a key market focus, with the hope being that face to face talks will calm the tone of the discussion and increase the chances of a positive outcome. It’s worth noting that if a solution is not agreed by all parties the ECB may take it upon itself to review the solvency of Greek banks. A two thirds majority of the governing council’s 21 voting members is required to end the Emergency Lending Assistance programme (ELA) which would force Greece to impose capital controls or exit the euro currency area. While I don’t see this happening, it is important that you understand the full scope of the crisis that could occur today. Not surprisingly Greek assets were crushed after the German response yesterday. Put your seat belts on, it could be a rocky ride today!
Unsurprisingly the fate of EUR/USD will be in the hands of the Eurogroup today. It is already under significant pressure this morning. I would suggest that the 1.1260 – 70 zone is worth watching as a move below is likely to significantly reduce the likelihood of my recent speculation that we could get one final spike higher in the currency pair before the bearish trend continues. I am reluctant to give up on that view yet, and the fact that gold prices haven’t started rallying suggests to me that there is no real panic in the market at the moment.
On the data front, we have some Eurozone PMI data in aggregate and in some of the larger countries. French and German manufacturing sector PMI are already out and while not impressive show signs of expansion, however the services data is more constructive. It looks like the Germany economy is picking up a bit of momentum actually. Remember I mentioned an improving outlook in Japan in yesterday’s blog? So that’s 2 out of the world’s 4 largest economies showing signs of improvement, even as the largest – the United States – maintains a robust growth profile. All is certainly not gloomy! Later, we also expect to see retail sales data in the UK which is forecast to be solid on a year on year basis.
There could be significant announcements around the Eurogroup meeting. We will endeavour to alert you to them via our twitter handle (@parityfxplc) through the day.
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