FOREX: Dollar Gains Amid Anxiety Ahead Of EU Summit Outcome

By Ilya Spivak, Currency Strategist

Talking Points
  • US Dollar Gains Amid Anxiety Ahead of EU Leaders’ Summit Outcome
  • Greece Under Pressure to Deliver on Troika Demands to Release Aid
  • Eurozone May Speed Up ESM Funding by 1 Year, News Reports Suggest
  • ISDA Decision on CACs in Greek PSI Bond Swap May Trigger Default

The US Dollar advanced against its major counterparts inovernight trade despite a pickup across Asian stock exchanges,which would typically be expected to weigh on demand for the go-tosafe haven currency. The Japanese Yen fell after BOJ Governor MaasakiShirakawa said the bank will maintain easing measuresuntil its inflation goal of 1 percent is achieved. The MSCI AsiaPacific regional benchmark equity index added 0.4 percent,following Wall Street higher. North American shares seemed tooverlook a lower than expected ISM Manufacturing reading and mixed results from Personal Income andSpending figures to focus on weekly Jobless Claims data. Initialand continuing claims fell to the lowest in 8 and 7.5 years,respectively.

Meanwhile, FX markets looked ahead, with alleyes on the outcome of the EU leaders’summit concluding today in Brussels. The focus here is on the mechanics of implementing the second Greek bailout agreement , with Athens scrambling to complete a long checklist of requirements by the meeting’s conclusion to secure thefirst tranche of funding. Although EU policymakers have allowed Greece to missample deadlines before, the downgrade in credit market riskfollowing the second 3-year ECB LTRO this week means their tolerance has likely been diminished . This opens the door for a testy outing , with the potential for a delay in the release of the first bit of aid threatening to put the Euro on the defensive .

With that in mind, initial news-flow from thesit-down has been generally supportive. Policymakers havereportedly agreed to speed up capital contributions to thepermanent ESM bailout fund designed to replace the temporary EFSFnow in place. While a final decision is still pending, initialreports hint Eurozone governments may make the first two annualinstallments into the find this year with the aim of having it atfull capitalization of €500 billion in 2015. That would beone year ahead of schedule. The leaders of the currency bloc arealso expected to sign off on the so-called “fiscalcompact” hashed out in late January , clearing the way for it to be approved bynational parliaments and in the case of Ireland, areferendum.

Another piece of the puzzle is likely to beanother ruling from the International Swaps & DerivativesAssociation (ISDA) on the collective action clauses (CACs)written into the terms of the Greek PSI bond swap. ISDA announced earlier today that the ECB’s absence from the bond swapdid not constitute a “credit event” that would triggerCDS redemptions. The key question now is whether that remains thecase if participation in the exchange falls short of the expected75 percent. The CACs would compel rebellious debt holders into theprogram, meaning the bond swap was no longer voluntary and thusmaking it hard for ISDA not to call it a default. While that ishardly the threat it was before ECB LTRO efforts built a firmfirewall around EU banks, at least some reflexive Euro sellingappears likely as a knee-jerk reaction in such ascenario.

Asia Session : What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:30

JPY

Job-To-Applicant Ratio (JAN)

0.73

0.72

0.71

23:30

JPY

Household Spending (YoY) (JAN)

-2.3%

-0.9%

0.5%

23:30

JPY

Jobless Rate (JAN)

4.6%

4.5%

4.5% (R+)

23:30

JPY

Tokyo CPI (YoY) (FEB)

-0.2%

-0.2%

-0.2% (R+)

23:30

JPY

Tokyo CPI Ex Food (JAN) (FEB)

-0.3%

-

-0.4%

23:30

JPY

Tokyo CPI Ex-Fresh Food (YoY) (FEB)

-1.1%

-1.1%

-1.1%

23:30

JPY

National CPI (YoY) (JAN)

0.1%

-0.1%

-0.2%

23:30

JPY

National CPI Ex Food (JAN)

-0.2%

-

-0.1%

23:30

JPY

National CPI Ex-Fresh Food (YoY) (JAN)

-1.1%

-0.9%

-1.1%

23:50

JPY

Monetary Base (YoY) (JAN)

11.3%

-

15.0%

0:00

NZD

ANZ Commodity Price (FEB)

0.0%

-

1.1% (R-)

E uro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:00

EUR

German Retail Sales (MoM) (JAN)

0.5%

0.1%

Medium

7:00

EUR

German Retail Sales (YoY) (JAN)

0.2%

-0.9%

Medium

9:30

GBP

PMI Construction (FEB)

51.3

51.4

Medium

10:00

EUR

Euro-Zone PPI (MoM) (JAN)

0.5%

-0.2%

Medium

10:00

EUR

Euro-Zone PPI (YoY) (JAN)

3.6%

4.3%

Medium

10:00

EUR

Italian Deficit to GDP (2011)

4.0%

4.6%

Low

10:00

EUR

Italian Annual GDP (2011)

0.3%

1.5%

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3167

1.3351

GBPUSD

1.5865

1.5989

--- 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/2012/03/02/FOREX_Dollar_Gains_Amid_Anxiety_Ahead_of_EU_Summit_Outcome.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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