Greek Deal Remains Elusive

The threat of an imminent Greek default looms large, with markets still awaiting the Greek response to demands by the Troika on economic measures. As talks between Greek political parties enter a second day, it is possible that the longer it takes for an agreement to come to fruition, the greater the chances for a disorderly default. In the US, Bernanke’s testimony to the Senate Budget Committee today is likely to have a dovish tone regarding the US economic outlook. At home, data released earlier today indicated that BRC like-for-like retail sales posted a very poor January performance.

Pound Sterling – UK Markets

Sterling has slipped below the 1.2050 mark against the Euro, as concerns surrounding the British economy come to the fore yet again with the BRC indicating that like-for-like retail sales declined 0.3% for January. Director General of the BRC, Stephen Robertson, indicated that “January has marked a return to reality for shoppers and for retailing in all its forms”. However, losses remain muted, as traders anticipated a 0.8% contraction in retail sales. Although the Pound hovered above the 1.5800 mark against the US Dollar, traders refrained from taking positive bets on Sterling ahead of the crucial BoE rate setting meeting due later this week. With no major economic releases due for today, sterling will continue to be influenced by news bytes from the Eurozone.

US Dollar – US Markets

The US Dollar has gained against the Pound whilst slipping versus the Euro this morning. However, in the initial trading session, the US Dollar had strengthened against the majors, amid market concern that the Greek government will fail to reach a deal on austerity measures to secure its next tranche of financial aid. Meanwhile, the key event on tap today is the Federal Reserve Chairman Ben Bernanke’s testimony to the Senate Budget Committee, wherein Bernanke is expected to maintain the Fed’s dovish stance on the US economic outlook. On the economic front consumer credit data is also awaited today, which is expected to indicate that credit growth slowed in December. With all eyes and ears set on the outcome of the arduous Greek negotiations, the event is likely to be a key influence on the US Dollar’s movement in the next few trading sessions.

Euro – European Markets

The Euro has regained some lost ground against the majors amid a dash of optimism, after Jean-Claude Juncker, the President of the Eurogroup of finance ministers, opined that he had no doubt about Greece's future in the Eurozone. However, the Euro has failed to record any meaningful gains against both the US Dollar and Sterling, on persistent deadlock in Greek debt talks. Traders have begun weighing the possibility of a Greek default, after reports emerged that Greece has not yet reached a deal on new austerity measures and that Greek Prime Minister, Lucas Papademos, requested the country’s Finance Ministry to prepare a document on the implications of a Greek default. Adding to the pressure, German Chancellor Angela Merkel indicated that time is running out for Greece to accept bailout conditions. The only tier 1 release on tap today is German industrial production for December, which is expected to show an uptick.

Other Currencies – Highlights

The Yen has weakened against the major currencies after Jun Azumi, the Japanese Finance Minister, reiterated his verbal warning of intervention. He indicated that he will not rule out any options to limit the currency’s gains and will take action, whenever required. The Yen was further pressurised, after reports indicated that the Japanese government and central bank collaborated to conduct a ¥1 trillion worth of unannounced currency intervention in early November to stem gains in the Yen. With persistent debt woes engulfing Europe, it would be interesting to observe if interventions succeed in preventing the Yen hitting new highs.