Greek Bailout Deal Fails To Bring Fireworks - What Gives?

By Ilya Spivak, Currency Strategist

Talking Points
  • Eurozone Finance Ministers Announce Deal on Second Greek Bailout
  • Australian Dollar Sold as RBA Minutes Restate Rate Cut Possibilities
  • US Dollar Likely to Rise as Spotlight Shifts to Global Slowdown Fears

Overnight news flow was dominated by theemergence of an agreement on the second Greek bailout package following an intense Eurozone financeministers’ summit in Brussels. As expected, policymakers pledgedto offer Athens €130 billion in funding through 2014 andoutlined an accord on private-sector involvement in reducingGreece’s debt burden that would avoid outright default andaims to bring the country’s debt-to-GDP ratio to thethreshold of sustainability at 120.5 percent by 2020.

While the Euro jumped higher in the immediate aftermath of theannouncement, bullish momentum quickly ran dry and the singlecurrency is set to enter European trade virtually flat againstthe US Dollar . Meanwhile, the sentiment-sensitive Australian and NewZealand Dollar slumped along with a drop in Asian shareprices. The Aussie underperformed after minutes fromFebruary’s RBA policy meeting showed the central bank saw scope foradditional rate cuts and reckoned that a mild inflation outlookgives scope for future easing if demand growth proves weaker thanexpected.

At first glance, this seems counterintuitiveconsidering the degree to which Greek bailout negotiationspreoccupied risk appetite trends over recent weeks. Indeed, onemight expect that the final emergence of a deal would boostrisk-taking and the Euro alike. However, as we argued two weeks ago and on numerous occasions since, a Greekdefault has not presented a significant danger to global marketssince December. At that time, the ECB pumped enough cash into EUbanks through its 3-year LTRO facility to effectively prevent acredit squeeze. This meant that worries about the looming March 20deadline when Greece would run out of cash to pay for maturing debtobligations were reflexive rather than rational.

With that in mind, we suggested that a bailout announcement would not generatea lasting boost to risk appetite, with the spotlight quicklyshifting to the dismal outlook for global economic growth. E conomists’ median world GDP expectationsfor 2012 have been sinking p recipitously since early August, with globaloutput expected to a meager 2.13 percent to yield the weakestperformance since the end of the Great Recession three years ago.Against this backdrop, renewed risk aversion appears to be the pathof least resistance. Needless to say such an outcome bodes well forhaven currencies, with the US Dollar expected to fare particularly well consideringit is the only major safety-linked unit in the FX space (the othersbeing the Japanese Yen and the Swiss Franc ) unburdened by intervention from domesticauthorities.

Asia Session : What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

0:30

AUD

Reserve Bank Board February Minutes

-

-

-

2:00

NZD

RBNZ 2-Year Inflation Expectation (1Q)

2.5%

-

2.8%

4:30

JPY

All Industry Activity Index (MoM) (DEC)

1.3%

1.5%

-1.0% (R+)

E uro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:00

CHF

Trade Balance (CHF) (JAN)

2.5B

2.01B

Low

7:00

CHF

Exports (MoM) (JAN)

-

6.1%

Low

7:00

CHF

Imports (MoM) (JAN)

-

7.6%

Low

8:00

CHF

Money Supply M3 (YoY) (JAN)

-

7.7%

Low

9:30

GBP

Public Finances (PSNCR) (£) (JAN)

-24.7B

22.9B

Low

9:30

GBP

Public Sector Net Borrowing (£) (JAN)

-9.1B

10.8B

Low

9:30

GBP

PSNB ex Interventions (£) (JAN)

-6.3B

13.7B

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3175

1.3346

GBPUSD

1.5829

1.5902

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya , e-mail ispivak@dailyfx.com . Follow me on Twitter at @IlyaSpivak

To be added to Ilya 's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com
DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

Original Article: http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/euro_open/2012/02/21/Greek_Bailout_Deal_Fails_to_Bring_Fireworks_-_What_Gives.html

DailyFX is the forex news and research arm of FXCM (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

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