Euro Firms on Greek Austerity Plan

Last updated 3/3/2010 6:06 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Markets focus on Greek austerity measures
• UK PMI Services blows past ecpectations at 58.4 vs. 55 eyed
• Equities slightly higher in Asia and Europe
• Oil just below $80/bbl
• Gold above $1130/oz at 1134/oz. last

Overnight Eco

• AUD GDP 0.9% as expected
• AUD AIG Services Index 48.3 vs. 47.4
• JPY Average Cash Earnings 0.1% vs. -1.2%
• EUR German Retail Sales 0.0% vs. -0.5%
• EUR Final Services PMI 51.8 vs. 52
• EUR Retail Sales -0.3% vs. -0.3%
• GBP Services PMI 58.4 vs.55
• GBP Nationwide Consumer Confidence hits two year high at 80

Event Risk on Tap

• USD Challenger Job Cuts
• USD ADP Non-Farm Employment Change expected at -9K
• USD ISM Non-Manufacturing PMI expected at 51.0

Price Action

• USD/JPY finds support at 88.50 and bouncs back to 89.00
• AUD/USD spikes to .9065 on good GDP data but overall flow keep it subdued at .9035
• GBP/USD 1.5000 remains volatile as better confidence data
• EUR/USD 1.3650 caps the rally for now

The EUR/USD rallied in the wake of news leaks of a near 5 Billion euro austerity package to be announced by the Greek government shortly, but concerns over the prospect of financial support for the deal from Germany and France capped the upside to 1.3650 for the time being. As we reported earlier, the Greek government is expected to announce a series of measures  to reign in its ballooning budget deficit  including a freeze on pensions, a 12% cut in civil service wages and an increase in the VAT tax.

At first glance, the Greek plan appears to have made serious progress in addressing the fiscal budget deficit problems that have wreaked havoc on its capital markets since the start of the year and is likely to assuage the ratings agencies who have threatened to down grade Greek government debt below investment grade.  However,  Greek fiscal officials will still require support from EZ two most powerful members – Germany and France – in order to access debt markets on favorable terms.  

The currency markets remain uncertain about the level of support that the Germans and the French will extend to the Greeks and trading in the EUR/USD therefore remained volatile as the pair was unable to hold on to its session highs near 1.3650. Nevertheless, we believe today’s developments go a long way towards pacifying the markets which have become preoccupied with fragmentation risk in the region. If the Germans and the French offer support for Greece, the sense of crisis may lift from the markets and the EUR/USD could see a short covering relief rally over the next several weeks.

Meanwhile in UK not one but two significant upside economic surprises helped to lift cable above the 1.5000 level by midday London trade. UK Nationwide consumer confidence rose to 80 from 71 projected – a massive spike that hit a 2 year high as consumers turned more upbeat about the economy and labor markets.  Similarly UK PMI Services rose to 58.4 from 55 expected, it best reading in more than 3 years. The news suggests that growth in the private sector may be much stronger than the market initially thought  and could lead to a significantly higher GDP reading for Q1. An upside surprise in growth would be welcome news for the pound which has been hammered over the past several days on the assumption that UK economy could be in danger of falling into a double dip recession.  Cable rallied on the news holding the 1.5000 figure for the time being and could push higher to 1.5100 as the day progresses if risk flows prove supportive.

Finally in North America the focus will be on jobs as traders scrutinize the ADP report due at 13:15 GMT and well as the employment subcomponent of the ISM Services release due at 15;00 GMT. The monthly figures could be affected by the unusual snowstorm conditions that plagued US in February and the current market expectation is for a larger than normal decline in jobs due to weather related issues. Therefore if the data  surprises to the upside  risk flows could receive a significant boost given the tempered market expectations.  

FX Upcoming

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.