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    European Session – Euro rises as markets looks to new Greece deadline, pound unchanged after Osborne budget

    The euro rose against the dollar today after some new developments regarding Greece that raised optimism for a deal with its creditors in coming days. The Greek government received a new deadline to reach a deal on Sunday July 12th when EU leaders from all 28 member countries will meet. Sentiment for the euro improved after Athens submitted an official request today for a three-year loan facility from the European Stability Mechanism (ESM) and agreed to making reforms soon. This set the ball in motion for the process of formal negotiations that is expected to culminate with a financial aid package at Sunday’s EU leaders’ meeting. Greek Prime Minister Alexis Tsipras said a proposal will be submitted by Thursday July 9th and promised measures on tax and pension reforms.

    In the meantime, market jitters were calmed down by expectations that the ECB would likely increase sovereign bond purchases to contain possible damage in the markets in the case of a Grexit scenario.

    The euro traded above the key 1.10 level in the European session and hit a high of 1.1072, up from the session open of 1.1007.

    In other news, UK Chancellor of the Exchequer George Osborne delivered his first Conservative budget since the party won the May elections. The Chancellor downgraded GDP growth forecast for 2015 to 2.4% (from 2.5%) but there was no change for 2016 forecast of 2.3% and 2014 growth was revised up from 2.6% to 3.0%. The budget deficit is expected to fall to 3.7% as a proportion of GDP in 2015/16, down from 10.2% in 2010. Sterling did not respond much to Osborne’s speech as there was nothing groundbreaking said. Cable remained weaker against the dollar today and extended yesterday’s decline to fall to a one-month low of 1.5342. Meanwhile the euro rose against the pound to a two-week high of 0.7202. On Thursday the Bank of England will hold a policy meeting but the minutes of this meeting that will be released on July 22nd will probably be more important to watch.

    The yen continued to gain strength today due to safe haven flows and also received support from strong Japanese current account data. The turmoil in Chinese stock markets caused risk aversion in the region and as a result the Nikkei fell.

    The dollar is down 1.2% against the yen so far today as it tumbled to reach a low of 120.98. Focus shifts to tonight’s FOMC minutes from the June 16-17 meeting. Investors will look out for any clues on the Fed’s monetary policy as the uncertainty in Greece and China may shift expectations of a rate hike to a later date than the September timeline expected.

    The Australian dollar extended losses against the greenback to 0.7371 before steadying at around 0.7420 amid fears about China, which is Australia’s main trading partner. Meanwhile, Australian employment data will be closely watched early on Thursday.

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