On Friday, the FX market was expected to have average volatility. In the first part of the day, he Flash Manufacturing PMIs gave the direction of the Euro. French, German and European Flash Manufacturing PMIs were all below estimates. Even though for these countries the Flash Services PMIs were all above estimates, it did not matter. The euro was pushed lower against its major counterparts. EURUSD traded below 1.1300, EURGBP broke below 0.7350 and EURJPY reached 133.50.
Even though investors were expecting a deal to be made by the end of last week between Greece and its international creditors, everything went in such a way that nobody expected a deal to happen on Friday. But it did!
Greece got a 4-month extension of the current program, even though they have asked for 6. During these 4 months, the Bank recapitalization will remain and the extension will allow a possible follow-up deal. For all of this Greece has committed to honor all its obligations in full. They are the first on the list is to present the new reforms on Monday.
Some of the most important events which have happened over the weekend:
- Greek Finance Minister is confident that partners will accept reforms;
- New talks made by UK and US regarding Ukraine;
- ECB rules out capital controls for Greece;
- Hollande declared that the proposed deal with Greece is a “good compromise”;
This morning the Japanese PM’s adviser, Etsuro Honda, has made some interesting statements. He said that yen between 117 and 120 per dollar is “a comfortable level for Japan’s economy”, that there is no good reason to apply additional easing now because it should take about 6-8 months for the effects of BOJ’s October 31 increase in the monetary stimulus to filter through the economy. USDJPY is trading below 119.00, but it remains in a sideways move between 119.35 and 118.30. In the meantime, NIKKEI225 hit fresh new 15-year highs.
RBA has an interesting view regarding the Aussie. The Commonwealth Bank of Australia is expecting the Australian dollar to end this week below 0.7600 against the greenback. Their reasons are:
- Australian bond yields could edge lower on the twin effects of Australian CAPEX and Fed Chair Yellen’s testimony this week;
- Yellen will repeat recent resolve of the FOMC to lift rates midyear;
- Q4 mining CAPEX is likely to fall more than expected;
- Remaining LNG projects will be completed in 2015-16, making it harder for Australia to transition to growth led by the non-mining business.
For today, the economic calendar doesn’t give us much. German IFO Business Climate is expected to be higher than last month, 107.4, CBI Realized Sales for UK is expected to rise at 42 and US Existing Home Sales is expected at 5.03M, 0.1M lower than last month. Even though there are not that many economic indicators to be released, the volatility could be above the 10-day average because of Greece deal. Everyone is expecting their reforms.