The Greek plot thickens

The Greek plot thickens. At around 1am this morning reports surfaced that the Greek meeting had broken up and talks had been inconclusive with one key austerity measure yet to be resolved. So much for the imposed deadline! The Troika is set to meet with the Greek PM (again). These ‘talks’ are getting a tad repetitive. Even if an ‘agreement’ is reached will that solve the debt crisis? I doubt it very much. There has been so many ‘agreements’ to meet new benchmarks and there may well indeed be an agreement on a second bailout giving Greece funds to pay the 14.5 billion euro bond redemption due on March 20th.  However, there’s been one small problem. All these agreements have been broken. As someone eloquently put; “As a parent, I realise the ineffectiveness of the ‘this time we really mean it’ doctrine”. Greece will go back to being Greece and there’ll be ‘further talks’ down the line. I thought we were finally going to get some clarity however to use the now often quoted phrase we’re “kicking the can down the road” again. And just released is the news that the Troika has given Greece 15 days to find a pension cuts alternative. It should be fairly straightforward to find 300 million EUR of cuts in that time period. Perhaps there’ll be change down the back of someone’s couch.

What has this indecision done to EUR/USD? It’s strengthened the EUR of course (please excuse my sarcasm). EUR/USD has now posted new 2012 highs breaking the 1.33 figure. We’re now some 700 pips above 2012 lows. This level is unsustainable. There’s no value in going long on EUR/USD and I think this pair is going to come down sharply akin to a heavy drug user. The main events of the day (excluding Greek talks) are the ECB and BoE meetings. We don’t expect to see a change in policy rates at the ECB meeting but the Q&A will be keenly scrutinized to determine the rationale for ECB participation in the second Greek bailout and Draghi’s answers. We won’t have a change in interest rates however that could come next month from the ECB or at the latest April as inflation isn’t an issue and they’re looking to stimulate growth so they can be more accommodative.

The BoE meeting is a little clearer (I think). It’s expected that we’ll have a 50bn expansion in QE. The statement after will focus on the downside risks to growth and inflation however we’ll find out more when the Quarterly inflation report is announced.

GBP/USD is still at high levels reaching a new high of 1.5928 yesterday. Only in mid January we were at 1.5282. I’d expect GBP/USD to come off today so if you’re a buyer of USD I’d look to secure some of your exposure at these levels or if you’re a seller of USD I’d look to work a market order around the 1.58/1.5820 mark.

On GBP/EUR, as I stated the other day, we’re back under the 1.20 level on EUR strength coupled with the ongoing Greek situation. GBP/EUR will bounce however I’d look to work orders at 1.20 and secure some of your exposure. With Sterling’s propensity to fall quicker than it rises in these markets I’d look to protect your downside on this pair short term. Look to work an ‘OCO’. If you need some clarification on this please let me know.

We’ve had some good figures out of the UK this morning in the form of Goods Trade Balance (Dec), Trade Balance; non-EU (Dec) Industrial Production and Manufacturing Production. No data of note from across the pond today so the ECB and the BoE will be the main points of interest (and of course Greece, again).

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