Talks between Athens and private creditors have resumed with “some progress” being made. Frankly, I’m getting a little tired of quoting the word progress. Like the old advert in the 80’s, the talks go ‘on and on like Ariston’. Friday’s talks will focus on legal and technical issues, however they still haven’t agreed on an interest rate on new bonds to replace existing debts. At the beginning of the week Greece said talks would be concluded by the end of this week. I doubt that very much – talks will continue over the weekend and into Monday. Greece won’t get access to a new tranche of funds to settle 14.5 billion of loan repayments due in March from the Troika (IMF/EU/ECB) unless a deal is struck as it is a precondition from the Troika. A deal will be reached; however what form it takes is anyone’s guess at present.
The EUR came under pressure overnight in the Asian session drifting back below the 1.31 figure on EUR/USD as the market awaits developments on Greece. The focus of the market has now turned from the Fed and the Dollar back to the EUR and debt talks. With the focus shifting, and the EU summit meeting in Brussels on Monday keenly anticipated I think we may see some range bound activity today as the demand for the US dollar will be subdued ahead of GDP figures out today that will probably show an improvement in US economic growth in Q4 2011, and that will support a flight into riskier higher yielding assets.
Everything you hear on the news, read in papers, on-line etc always focuses on Greece. Due to the severity of their predicament this is quite rightly so. However, what seems to be ‘swept under the carpet’ in recent weeks is the situation of Portugal and Spain. I think Portugal will be the next focal point for the mainstream media. Portugal’s 10 year bond yield hit a Euro area high of 15.24 per cent. There is now a real possibility that they could eventually default on their debts. If their yield goes above the 20 per cent level, which is quite likely, then it’ll worsen the Eurozone debt crisis significantly. We’ve also had Spanish employment figures out (or lack of). These now stand at a 17 year high, over 5 million people, and 22.8% of the working population. In any other reality these would be headline figures. I just don’t see a satisfactory outcome for the single currency, whatever the powers that be do. I maintain that the EUR will push lower this year and quite significantly at that against most currencies.
As alluded to above the main market event of the day is the release of the US GDP figure out this afternoon at 13.30 UK time. We’ll see some volatility at this time on USD crosses. The market is flat this morning with the majors trading in a range. On Cable, if you need to purchase USD I’d look at a market order at 1.57. We were down at 1.5260 just over 10 days ago so this represents good value after the Fed announcement that resulted in some USD weakness. On GBP/EUR I’d look at working orders at the 1.20 level for the time being as I think that is quite toppish in current trading. I’d look to put orders in on GBP/USD and GBP/EUR on a GTC basis (Good till cancelled) and try and achieve these levels over the coming sessions.
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