GO Markets FX Analysis | Greek deal fails to inspire sustained upside

Greek deal fails to inspire sustained upside

As the door closes on one destructive theme, a new, potentially more destructive one is lurking in the background, with fiscal cliff concerns back to the front line overnight.

While news of Euro-Zone finance ministers and the IMF agreeing to terms required to unlock much needed bailout funds for Greece provided a degree of solace for markets, the result was – for the most part – priced in, with little more to encourage sustained upside. This was reflected most in the Euro which initially peaked above $US1.30-figure, but there was little impetus to carry it higher, with markets eventually selling the EURUSD deep into the 1.29 handle. The latest initiatives are designed to give Greece a fighting chance to reduce their debt to GDP ratio to 124 percent by 2020 from the originally estimated 144 percent, and “substantially below” 110 percent by 2022. The deal consists of a reduction in interest rates paid on existing loans to the tune of 100bps, a return of profits from the ECB on previous purchases of Greek debt, and a buy-back of existing government debt at a value no higher than on November 23, which is expected to be concluded before the next Eurogroup meeting on December 13.

Across the Atlantic, the bias was neutral to slightly negative as markets pondered exactly how President Obama and his Republican counterparts will broker a deal over the fiscal cliff before year end. Stronger economic data kept losses in check with durable goods orders, house prices and the conference board gauge of consumer confidence all coming in ahead of expectations. Still, the clock is ticking and there little fresh news on the fiscal cliff negotiations to inspire further upside as markets brace for another eleventh hour deal, in the style of the bungled 2011 debt ceiling deal.

Aussie dollar to adhere to 104.4 / 105 range

Meanwhile, the Australian dollar eased overnight following a brief period of upside on Greece. The local unit rose to highs of 104.91 US cents before following US equities lower, with support at 104.4 US cents containing losses.

It’s another light day in terms of data on the local docket with third-quarter construction data on the bill, in turn we anticipate regional equities to provide direction before the European handover with any downside likely to adhere to support at 104.4 US cents once again. We also anticipate continued reluctance for the local unit to move beyond 105-figure, with rallies likely to be met with equal and opposite resistance in light of the uncertain surrounding the US fiscal cliff. There’s a sense negations will go down to the wire, in turn we expect investors to err to the side of caution, with the greenback obvious hedge against a perceived lack of progress.

Despite the threat of another elongated and arduous journey surrounding the fiscal cliff, US equities recorded solid gains last week with the S&P up over 3.5 percent last week.  Although there appears to be some political will, we believe a lack of momentum surrounding talks will be begin to infiltrate market psyche once again. With this we believe the US dollar is primed for a period of rejuvenation based on a move back to perceived safe haven units.

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