EURUSD Rallies Off Lows As Greek Officials Deny 11am Deadline

• Friday – USD initially falls after release of much better than expected January unemployment report but gradually recovers versus European currencies and JPY
• Greece edges ever closer to default as creditors set noon deadline for agreement
• Gold rallies off Fridays low’s reaching $1734 after price fell back to $1723.75 on Friday
• AUD December Retail Sales unexpectedly fall- news sends AUDUSD slightly lower as calls increase for the RBA to lower interest rates this week
• EURCHF falls back from pre-weekend highs near 1.2085 as EURUSD breaks under lower ahead of the European opening.
• All European bond spreads rise ahead of London opening as France looks to sell some 8.5 billion of bills today
• This week sees interest rate decisions from the RBA, ECB and BOE.
• EURUSD rallies off lows as Greek officials deny 11am deadline
• Gold falls under $1725 in early trade as European equities open lower
• Oil slips in early trade as concerns resurface on global economy prospects

Good morning. Friday saw the release of a much stronger than expected January payroll report.

Non-farm jobs increased 100k more than expected at 243k with a similar increase in private payrolls to 257k, but the really encouraging number was once again the increase in the manufacturing payrolls which rose by 50k versus the general consensus 12k increase.

That last number, as I keep reminding you, is the one that I believe really gives credence to the US recovery and all the time that keeps expanding it’s got to be good news for the US economy,

The initial reaction by the market was to sell the dollar. I sat there staring at my screens in disbelief as the EURUSD traded above 1.32.

However, the truth is as usual that the price wasn’t up there for very long and once the confusion over ‘risk on’ and its correlation to the dollar was worked out, it actually fell back very sharply.

Then as the EURUSD fell back, eventually through 1.3100 the commodity currencies rose and the likes of the EURAUD and EURCAD were sold aggressively.

At the same time as all this was going on the equity markets were loving it and the Dow was flying higher.

That certainly helped the USD gain versus the JPY, so the net upshot was, with the AUD and the CAD and NZD higher, the likes of the AUDJPY, CADJPY and NZDJPY all moved back to near their highs reached so far this year.

However as the USD gained versus Europe and Japan, Gold came under pressure and started to fall. This made me more than a little confused.

Oil was markedly lower at the same time. So in effect we had a higher USD weighing on the metals and commodities at the same time as the commodity currencies were higher.

Then as the EURUSD started to rally of its lows around 1.3065, gold fell even more breaking back underneath $1730 as more and more stops were triggered.

For the rest of the late afternoon the EURUSD spent all its time then trying to probe the topside as the price lifted back over 1.3150. Conclusion – I sat there scratching my head; like many others I suspect.

Stepping back the point about all this is that if we believe the numbers coming out of the US and I do, then there is a serious decoupling taking place between Europe and the US and that should be reflected in the exchange rate.

I believe that will be the case no matter what rubbish comes out of the euro saga.

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Overnight fresh news emerged from Greece that a spilt had formed in the coalition government in regards to further spending cuts now required to satisfy the criteria for the next EUR 130 billion payment after news emerged that fresh funding was not going to be made available without further spending cuts.

There is an 11am deadline apparently for the Greek government to reach an agreement on this or there will be no more money.

I don’t know any more than this at this point, but if there’s no more money Greece will default on March 20th, when some 14 billion Euros of debt is due to be repaid.

The AUDUSD which had moved to within spitting distance of 1.08 on Friday, fell back overnight after the release of data showing a fall in December retail sales.

That release also helped increase the number of calls for the RBA to lower its benchmark when it makes that decision tomorrow at 3.30am GMT. The consensus now is for the RBA to lower rates to 4 from 4.25%.

Ahead of the London opening this morning, European bond spreads are widening, with the possible exception of Portuguese paper (why I don’t know) as nervousness abounds. France is due to come to the markets this morning to sell some 8.5 Billion EUR in bills this morning.

Whilst I don’t think that will present a problem the markets may demand more premium for funding this such a short time in front of the 11am Greek deadline.

This morning could mark a defining moment in this European saga. I don’t know what is going to happen, but I do know that the Greek people are fed up with being told what do to and I think the mood there is growing for a 2 fingered salute to the EU and its creditors.

It’s a good guess that Greece will never be able to repay or recover with the measures imposed thus far, so what chance further austerity having any positive impact?

Pushing this further could just mean that everyone loses and if Greece decides to let the CDS kick in then will that necessarily be such a bad outcome? Well we might just find out soon.

Elsewhere the EURGBP is lower despite the growing calls for the BOE to introduce more QE this Thursday. The price is being pushed the other way because of prospect of a Greek default looming ever larger and if not that then the possibility of a move by the ECB to lower interest rates as well.

However the consensus is that the ECB will remain on hold at 1%- more on this tomorrow.

The EURUSD rallied off the opening levels to pullback near 1.3100 just after the European opening on comments from Greece’s Papademos, that there was no 11am deadline but that comment has seemingly been ignored by the European equity markets, which have opened lower and that has helped the EURUSD slip back to pre opening levels, around 1.3055 as I conclude this update.

There are stop losses rumoured to be under 1.3040 and I would be surprised if we don’t see that level tested this morning.

The lower equity markets have also weighed on risk and that has helped gold turn lower from earlier modest gains as well as that too pulls back to trade underneath Friday’s low, currently around $1720.

The move lower in Gold is continuing to weigh on crude as that trades ever closer to its lowest levels of 2012 this morning.

Today could be a landmark day I guess and I am not at all sure what is going to come out of all of this.