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Euro Drifts Lower as Markets Await Greek Parliament Approval

Last updated 2/10/2012 10:30 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Euro slightly lower as EU await for Greek vote until granting approval
• Aussie hammered on lower CNY imports
• Nikkei off -0.61% Europe off -0.76%
• Oil at $99/bbl
• Gold at $1723/oz.

Overnight Eco

• CHF Consumer Price Index (MoM) (JAN) -0.4% vs. -0.3%
• EUR German Consumer Price Index (MoM) (JAN F) -0.4% -0.4%
• GBP Producer Price Index Input n.s.a. (MoM) (JAN) 0.5% vs. 0.4%
• GBP Producer Price Index Output n.s.a. (MoM) (JAN) 0.5% vs. 0.1%

Event Risk on Tap

• USD Trade Balance (DEC) expected at -$48.4B
• USD U. of Michigan Confidence (FEB P) expected at 75
• CAD International Merchandise Trade (Canadian dollar) (DEC)

Price Action

• USD/JPY at 77.75
• AUD/USD tumbles through 1.0700 on weak Chinese data
• GBP/USD trades to 1.5850 on hotter PPI
• EUR/USD slides to 1.3250 as EU holds off on approval for Greece

Risk FX drifted lower on the last trading day of the week, hurt by the reluctance of EU officials to release the bailout funds to Greece and the weaker than expected import data out of China. The EUR/USD tickled lower in early European trade dropping through the 1.3250 level as EU officials refused to approve the rescue package with Greece insisting on Greek Parliamentary ratification of the austerity agreement that the country reached with Troika.

Greek parliament is expected to take up the vote over the weekend. Greek finance minister Evangelos Venizelos put the matter is stark terms by stating, “From today until the next meeting of the eurogroup, our country, our homeland, our society has to think and make a definitive, strategic decision. If we see the salvation and future of the country in the euro area, in Europe, we have to do whatever we have to do to get the program approved.”   

Although the Greek saga continues and risks of  default remains, the market is relatively confident that a deal will be made as EUR/USD continues to hover near its year to date highs. However, the situation remains politically charged and if the Greek Parliament balks at approving the draconian austerity measure imposed by the Troika market complacency will quickly evaporate sending EUR/USD sharply lower. Time is clearly running out for any further negotiating maneuvers as next week appears to be the hard target deadline for Greek bailout deal.

Meanwhile in China, the Trade Balance for January printed much hotter than expected at 27.3 Billion versus  10.8 Billion eyed, but the headline data masked a marked weakness in imports that suggested demand may be slowing significantly. The wide gap was caused by sharp slowdown  in imports, particularly iron ore, which declined by  -15.3% compared to a gain of 11.8% the year prior.  Exports decline by -0.5%.

Despite the seemingly healthy surplus the overall contraction in trade activity does not bode well for Chinese growth in H1 of this year and indicates that the economic slowdown in China may be much worse than then market imagined. The Aussie was the immediate victim of tonight’s news, dropping more than 100 points is Asian session trade as speculators feared that weak Chinese import demand would begin to weigh on    Australian economy going forward. The pair traded at 1.0685, well off the 1.0800 level in North American close. As we noted yesterday, the AUD/USD remains vulnerable to a steep selloff if markets begin to price in a slowdown in Chinese GDP.  

In North America today the calendar is relatively light with only Trade data and U of M on the docket. Consumer sentiment is expected to decline a bit 74.4 from 75 the month prior, but given the rise in the labor chance of an upside surprise is quite strong. Still trading may remain lackluster as markets await the outcome of the Greek vote over the weekend with EUR/USD ranging between 1.3300-1.3250 unless we have fresh headline shock to give us direction.

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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.