Will EU Seal the Fate of Greece?

With the Eurozone finance ministers set to again meet today, there is growing optimism that Greece would finally receive its aid tranche, as the German Chancellor and the French President have urged the region’s policymakers to wrap up an agreement in today’s meeting. Meanwhile, separatists in Spain's Catalonia region won the regional elections but failed to get a resounding majority for a referendum on independence. Back at home, all eyes focus on tomorrow’s GDP figures for a confirmation of the UK economy escaping a double dip recession. In the US, traders are back from the holiday weekend period and would keep a watch on the regional indices data due later today.

Pound Sterling – UK Markets

In Friday’s session, the Pound made gains against the US Dollar, as growing hopes that Eurozone policymakers would finalise the release of Greece’s next aid tranche dampened the appeal for safe haven currencies. However, Sterling has given up some of its gains against the US Dollar in today’s trading session. Market participants will monitor GDP data tomorrow for confirmation on whether the UK economy defied expectations by growing at a better than expected pace of 1% in the third quarter. Moreover, government spending figures due for release along with the GDP reading will also be closely scrutinised to gauge whether the UK government is adhering to its austerity stance. This week’s mortgage approvals data will be monitored for further evidence on whether credit up take in the system remained robust. With no cues on offer from the domestic front today, Sterling is expected to track news flow emanating from the Eurozone for further direction against the majors.

US Dollar – US Markets

The US Dollar is trading close to Friday’s lows against both the Pound and the Euro this morning, as traders expect the European finance ministers to agree on a deal to release the next aid payment to Greece. Meanwhile, the Dallas Fed manufacturing index and the Chicago Fed national activity index due later today are expected to provide a fresh perspective on the manufacturing front, as regional indicators from the North eastern areas showed signs of continued weakness, on account of the impact of Hurricane Sandy. Meanwhile, negotiations between the policymakers in the US are set to resume this week, in order to prevent the US economy from facing the brunt of the “fiscal cliff”. Apart from the developments in the European arena, a raft of economic data from the US during the course of the week is expected to play a critical role in determining the direction of the greenback against the majors. The start of the holiday season in the US is expected to prove positive for the consumer confidence data due later this week.

Euro – European Markets

The Euro moved close to the 1.30 mark against the US Dollar in Friday’s trading session, on burgeoning optimism that a deal to dispatch Greece’s next aid tranche would be finalised during the region’s finance ministers meeting slated later today. The German Chancellor, Angela Merkel and the French President, Francois Hollande, expressed confidence about the policymakers bridging their differences and sealing a deal today. Meanwhile, worries over independence of Catalonia, an issue which was earlier at the eye of the storm, appears to have temporarily subsided, as the ruling party which had promised to hold a referendum on independence, failed to garner majority seats in the elections during the weekend. Reports also indicated that European bailout funds will pump €35 billion into Spain’s state bank rescue fund next month, marking the first payment since a bailout for Spain’s banking sector was approved in June 2012. Apart from developments from the political arena, traders will also keep a watch on today’s consumer confidence data from Germany for further direction to currency markets.

Other Currencies – Highlights

The Japanese Yen has moved higher against its major peers in today’s session, despite the minutes of the BoJ’s latest meeting revealing that Japan continues to face the critical challenge of overcoming deflation, owing to which the central bank would continue to pursue powerful monetary easing tools. Against this backdrop, inflation figures slated later this week will be closely monitored for signs on whether the Japanese economy is responding to the deflation tackling measures used by the central bank. Meanwhile, the Bank of Japan Governor, Masaaki Shirakawa, who is facing criticism from politicians across the spectrum for failing to arrest deflationary pressures, urged the government to take the course of deregulation to spur investment and take measures to improve the nation’s fiscal situation. We believe that the outcome of the Eurozone finance ministers meeting later today will provide further direction to safe haven currencies.