Economic Data Lifts Euro

NEW YORK (BBH FX Strategy) -- The dollar is declining ahead of the North American open as markets are encouraged by the better tone of the January manufacturing surveys. News that Greece and private creditors are nearing a tentative agreement is also contributing. Indeed, there are news reports that Greek's bondholder may get bonds tied to economic growth that would ease the burden of accepting a lower coupon.

As a result, Greek and European bank shares are higher, with Greek bank shares up nearly 10% on the day. The EuroStoxx 600 is currently just off its recent highs and S&P futures are pointing higher.

Portuguese yields are responding positively as well with the 10-year down 60 basis points. The euro surged more than one big figure from early lows and is trading just shy of 1.3150, while the antipodeans outperformed and traded at highs of 0.829 and 1.068. The yen is trading in front of 76 after it broke overnight lows of 76.15.

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The dollar has fallen almost 3% against the yen since testing the 200-day moving average near JPY 78.35 last Wednesday. It is now at its lowest level since the massive intervention on Oct. 31. The verbal intervention is already on the rise, but material intervention does not seem imminent.

In late July and October, prior to the past to intervention operations, there was a large run-up in the net long yen position in the futures market. That is not happening now, with the net long yen long position having been trimmed for the past two weeks. Some observers suspect that U.S. and European opposition to the intervention pose an obstacle to Bank of Japan intervention, but it is difficult to test that hypothesis as the BOJ has intervened unilaterally before.

One of the keys to the recovery in market sentiment since the beginning of the year has been the steady improvement in global economic data. In particular, economic data in the U.S., China and even to some degree the eurozone have largely been better than expectations.