LTRO Boost

Market optimism surrounding the ECB’s upcoming second Long Term Refinancing Organisation (LTRO) facility has convincingly aided the Euro in today’s trading session. Additionally, yesterday’s German lower house approval for the Greek rescue package has further helped trading sentiment. Market seems to have taken the credit rating downgrade of Greece by S&P and concerns emanating from the recent rally in crude oil prices in its stride. Across the Atlantic, durable goods orders and housing data due today are likely to be subdued. At home, markets await the CBI reported sales data for February which is expected to be largely positive.

Pound Sterling – UK Markets

Sterling is trading lower against the Euro as market mood towards the Euro remains upbeat ahead of the upcoming second tranche of LTRO. The additional liquidity measures by the ECB have substantially helped in easing fears of a banking sector crisis in the region. Meanwhile, strengthening prospects for the British economy has aided Sterling to register gains against the US Dollar. The CBI, in its report due later today, is expected to indicate an improvement in the British reported sales for February. Recent economic indicators, including upbeat retail sales, suggest that easing inflation may be providing some respite to consumers. Additionally, consumer confidence and consumer credit data, scheduled for release later this week, are also anticipated to be largely positive. We expect the Pound to maintain gains against the US Dollar today amid improving sentiment towards growth in the UK.

US Dollar – US Markets

Traders have shunned safe haven currencies this morning as fears of a Greek default have faded to some extent following German Parliament’s backing for the second bailout package for Greece. Additionally, market optimism ahead of the ECB’s LTRO has also boosted trading sentiment towards high yield currencies. In the US, market expects durable goods orders and S&P/Case-Shiller home price index, both slated for release later today, to register a drop. Yesterday, data indicated an improvement in US pending home sales and Dallas manufacturing activity. Risk sentiment has not taken a backseat despite S&P’s downgrade of Greek credit rating to “Selective Default” from “CC”. All eyes are now on the Dutch and Finnish Parliamentary vote on the new bailout package for Greece tomorrow.

Euro – European Markets

The Euro has managed to regain the 1.34 mark against the US Dollar after the German Parliament approved the Greek bailout package yesterday. Additionally, an air of optimism over the outcome of the second round of liquidity operations to be undertaken by the ECB has also supported gains in the Euro. The ECB is scheduled to call for bids today in the tender of unlimited three-year funds to help ensure liquidity for the region’s banks. According to market estimates, financial institutions may demand about €470 billion from the central bank. While S&P has lowered the credit rating of Greece to “Selective Default”, markets are now awaiting news flows from Netherlands and Finland, ahead of their vote on the Greek bailout package due tomorrow. Additionally, markets are looking ahead to Eurozone’s business climate indicator and German consumer price inflation data due later today. Data released earlier today indicates that German consumer confidence improved for March.

Other Currencies – Highlights

The Japanese Yen has retreated against Sterling and the Euro as traders shunned risk aversion, ahead of the second round of easing operations by the ECB. Initially, the Japanese Yen had registered modest gains amid market speculation that Japanese exporters were taking advantage of recent declines in the Yen to bring back overseas earnings. While this movement was also supported by the unexpected rise in retail sales in Japan for January, the Yen has since lost value as risk sentiment improved. Markets are eyeing manufacturing PMI and industrial production data, due later today, for further cues to the health of the Japanese economy.