Confusion Reigns
Markets ended US trading in a state of confusion as confusion reigned over Greece and the Eurogroup’s intentions on furthering bailout talks. Throughout the session it appeared that the EU leadership was beginning to lose faith in the Greek government’s policy continuity, and subsequently called off Wednesday’s Eurogroup meeting as ‘the paperwork was not ready’. German Finance Minister Schauble even began to openly talk of contingencies in the event of a Greek Eurozone exit and EURUSD subsequently dipped below 1.31. However, a late session recovery materialised as the second largest party in the Greek government was reported to have agreed to deliver a written pledge to maintain policy and reforms, which would be delivered on Wednesday. However, there appeared to be a lack of time to re-schedule the Eurogroup meeting for Wednesday and a conference call remains the plan, while the next Eurogroup meeting is scheduled to be a week later on February 20th. Just how long the market is willing to maintain its tolerance on such matters remains to be seen, but it appears that investors are better prepared, both operationally and psychologically for destabilising steps out of Greece, which has allowed the euro to maintain its current strength. We expect more developments to arise on Thursday but if the Greek government has indeed resolved outstanding matters with the Eurozone – including closing a EUR325mln budget gap – a short-term recovery in sentiment may yet materialise. In addition, the continued provision of stimulus by global central banks is a new source of solace as the BoJ’s adoption of an inflation target has underscored the new phase of policy support by the G5. Ahead on Wednesday, headlines around the Eurogroup conference call are the key focus but macro releases are also due, including German and Eurozone GDP, the UK employment reports and the BoE Inflation Report. FOMC Minutes are also due. EURUSD traded 1.3127-1.3216 and USDJPY 77.90-78.47.
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UBS Investment Bank