Morning Forex Review – 10 February

After Greek budget cuts were agreed upon yesterday the Euro ran up against peers as confidence improved, only to be later shattered by the announcement that no new bailout cash would be approved until new austerity measures were implemented. If no agreement is reached over the weekend by Greek politicians, it raises the possibility that Greece will be forced to exit the Eurozone according to Finance Minister Evangelos Venizelos. The hope is to complete the debt swap next week so Greece can receive the next bailout tranche. Equity markets closed mixed with the Spanish IBEX and German DAX pacing gains, trading up 0.60% and 0.59% respectively. The Italian MIB lost ground, trending down -0.09%, followed by the marginally lower Dutch AEX, decreasing -0.06%. After climbing over 1.3300, EURUSD is back down, falling -0.15% to 1.3264. GBPUSD also is trailing downwards, falling -0.13% to 1.5797 and retracing part of yesterday’s gains. As expected the Bank of England expanded the asset purchase program by £50 billion.

Asian indices are mixed in today’s session, as fears over a Greece exit from the Eurozone affect risk-sentiment among investors. Stocks are led lower by the Australian ASX, declining -0.60% and followed closely by the Hang Seng, down -0.51%. The New Zealand NZX is up 0.74% and the Indian NIFTY is also moving higher, rising 0.25%. China’s exports continue to be a source of pain for equities as both exports and imports fell in January after headwinds from the holiday. The decline is partially offset by seasonal factors like celebration of the Chinese New Year. It does raise the possibility of a greater slowdown, and if Europe continues to slip in recession, China’s growth could be cut by half. Meanwhile, the Bank of Japan continues to raise rhetoric to stem the rise in the Yen in response to deepening export declines and weaker GDP figures.

The massive foreclosure fraud in the U.S. housing market perpetrated by major U.S. banks was settled yesterday for a massive $25 billion to be one of the largest settlements in history. Although it still has to be approved by a judge, most banks will not need to set aside additional reserves above what has already been allocated. U.S. initial and continuing jobless claims came in better than expected, adding momentum to risk sentiment and pushing equities higher. The Nasdaq rose 0.39% while the S&P 500 and Dow Jones followed closely behind, climbing 0.15% and 0.05% respectively. Yesterday’s treasury sale of 30-year bonds had a lower bid-to-cover than the last auction, with yields rising slightly, highlighting decreased investor interest in safety assets. Crude oil continues to rise, testing the $100/barrel level and settling presently at $99.44. Coffee and Cocoa are both lower, falling -1.95% and -1.49% correspondingly. Fed Chairman Bernanke is slated to speak later today, addressing questions about inflation and employment.