Germany Rejects the Loan Extension Proposal Submitted by Greece
Germany and Greece remain at loggerheads over the best way forward for the monetary union, further hampering the probability of a negotiated compromise. In the lead up to the final day of negotiations with the Eurogroup, Greece yet stands at odds with the European Finance Ministers as Germany outright rejected the bailout extension proposal endorsed by Greece. Although the ECB expanded its Emergency Loan Assistance (ELA) program to Greek banks by €3 billion, the latest Greek tax receipts missed expectations, leaving a shortfall that will leave the country without cash in less than two weeks. Monday marks a bank holiday in Greece so depositors are rushing to pull funds from banks in anticipation. The run on that nation’s banks has accelerated, with an estimated €25 billion pulled from banks since the beginning of 2015.
After the 14.3 million barrel build in the API crude stocks was released to markets on Wednesday, anticipation was high that EIA data would beat expectations on a similar basis. Crude oil inventories doubled estimates of 3.2 million barrels, adding 7.7 million barrels to see inventories at the highest level on record. U.S. oil production also hit new record highs, with daily output reaching a blistering 9.28 million barrels per day. Even though the rig count has fallen by 34% since peaking in October, U.S. producers are raising output on highly efficient projects in the Eagle Ford region to keep cash flow steady as bond payments come due. Further expansion in output is expected even though certain projects are taken offline due to high costs. The kneejerk reaction in crude to the EIA announcement was upside, and after crossing below $50 per barrel briefly, prices have rebounded back above $52 per barrel.
U.S. multinationals are facing an uphill battle as evidenced by industry bellwether and Dow Jones Industrial Average component Caterpillar. The heavy equipment manufacturer reported yesterday that January was the worst month of sales since the collapse of Lehman Brothers in 2008. Sales have been declining the last 26 months, further exacerbated by the stronger dollar impacting overseas sales. As was highlighted during the FOMC Meeting Minutes released two days back, the U.S. economy is facing headwinds as the dollar hurts exports. Fed policy is intended to remain data dependent but the data clearly does not support higher rates. The print in the Philadelphia Federal Reserve Manufacturing Index shows the U.S. manufacturing revival may be quickly meeting its end. Aside from falling for 3-straight months, the manufacturing index saw new orders tumble and the 6-month forward outlook cut by two-fifths.
EURUSD Horizontal Range Trading Opportunity
With European Finance Ministers yet unable to form a compromise with Greece and the Federal Reserve’s warnings on "lower for longer” regarding rate policy, the uncertainty has seen EURUSD consolidate. The main driver of the currency pair at the moment remains Greece as the deadline for reaching a comprehensive agreement looms. Either the Eurogroup will agree to certain concessions or Greece is likely to leave negotiations at an impasse with capital running dry within 1-2 weeks. The horizontal range based setup in EURUSD is perfect for trading the uncertainty, enabling traders to play the range between the support and resistance lines or conversely wait for the breakout trade opportunity. In the event of a breakout from the range, reward should be set to 60-70% of the former range with entry and exit strategies forming near the support or resistance levels.