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Forex: Living in continued hope

The drop in the euro after the collapse of the Greece talks (initially one big figure) looked out-sized given the fact that no-one really expected it to be any different. This had much more to do with illiquid markets in the face of the Presidents’ Day holiday in the US. Still, it seems that an agreement was close at one point, only to be snatched away from the table. Both sides appear to agree on some sort of extension of the current program. The eurozone wants this to happen in its current form. Greece wants it to be done with fewer strings attached, so it is ends up being a bridging loan in all but name. Given the need for countries to ratify any deal, then the end of this week is the effective deadline for an agreement to be struck. The euro is likely to be increasingly nervy and volatile as the week progresses.

The euro aside, the other standout overnight was the Aussie. After the ‘surprise’ rate cut earlier this month, there was some hope of more fuel for the fire in the minutes of that meeting which were released overnight. Such hopes failed to materialise, seeing some short-covering on the Aussie as the minutes showed that this was more a cautionary easing on the back deteriorating domestic and international conditions, rather than a start of a more sustained easing cycle. The Aussie has moved back above 0.78, a level which it has not closed above since the easing. Sterling is the main focus early on, with CPI data released at 09:30 GMT. This is seen falling to 0.4% on the headline measure, but perhaps more focus should be on the core measure, which is seen rising once again to 1.4% (from 1.3%). The Bank of England last week stressed that is sees the fall in inflation as temporary, hence the need to focus on the core rate. ZEW data is seen at 10:00 GMT in Germany.

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