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European Session – Euro rallies above 1.14 on Greek debt deal optimism

Posted on February 3, 2015 by the XM Investment Research Desk at 3:21 pm GMT

FB-euro_notesThe euro rallied to break above the key 1.1400 level for the first time in over a week, rising on the back of optimism on Greece’s debt renegotiation with its creditors.

Greece decided to back off from demanding a haircut on its debt and instead proposed a plan that included bond swaps – i.e. replacing some of the current debt with growth-linked bonds and perpetual bonds.

There was a positive market reception to the new Greek government’s proposals which boosted markets across Europe. Greek bank stocks benefitted the most, although European bourses also rallied. The euro rose to 1.1448 to finally break out of a range it had been trading in since the end of January.  Against the yen, the euro surged to 134.72. Earlier in the day, it had touched a low of 132.37 yen.

Also adding to the optimism over Greece was news that the Greek Finance Minister, Yanis Varoufakis will be meeting with his German counterpart, Wolfgang Schaeuble, soon.

Sterling was up against the dollar today, retracing yesterday’s losses after being propelled higher by a stronger- than- expected UK construction PMI. The Markit index rose to 59.1 in January from December’s 57.6, and surpassed a forecast of 56.9. The pound also rose on the back of a stronger euro and optimism over Greece’s debt renegotiation. Cable’s gains went to as high as 1.5118, up from the day’s low of 1.4987.

The Swiss Franc remained weak since the SNB “corridor” rumours for EURCHF kept the currency in check. The euro remained within reach of yesterday’s high of 1.0587 while the dollar eased off slightly from the 2-week high of 0.9344 francs.

The Australian dollar bounced off a 6-year low hit this morning after the RBA rate cut to 2.25%. From 0.7625, the aussie rebounded to 0.7706 in a more risk-on market environment.

In the US, December factory orders plunged 3.4% versus -2.4% expected, down for a fifth consecutive month. November’s figure was – 1.7%. The data was a another blow to the dollar, as it comes after yesterday’s disappointing ISM manufacturing figures and Friday’s dismal fourth quarter GDP number as well.

The dollar fell against the yen after the data to 117.52 from a pre-data high of 117.73.

Later in the US session, two Fed presidents will be speaking – Bullard and Kocherlakota – but neither are voting members, so not much impact to the markets is expected.



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