Euro Struggles on Selective Default & Weak PMI data

Euro dropped briefly after an announcement that Greek situation will include selective default before regaining 1,4190s. German and Eurozone manufacturing PMI both disappoint. UK Retail Sales improve. Focus turns to US jobless claims & Philly Fed index.

The market was optimistic as various solutions to Greece were presented earlier. During the Asian session, the euro strengthened further on the news that Germany and France reached a common solution. However, when details started to come in, the Euro dropped across the board and traded as low as 1.4140 against the dollar.

Merkel and Sarkozy agreed that a selective default on Greek debt is possible in order to allow private sector involvement. This position has been confirmed by J. C. Juncker, the head of Eurozone finance ministers. Reuters reports that even ECB has accepted selective default as a part of the solution.

The pressure on the euro increased after German Manufacturing PMI for July printed 52.1 from 54.6. This is the lowest reading since November 2009 and marks fourth month of back to back decreases. Eurozone Manufacturing PMI for July also disappointed when it dropped to 50.4 from 52.0 after gradually declining for four months to the lowest print since September 2009.

Positive news came out of the UK as June Retail Sales recovered to 0.7%. Last month was revised slightly up to -1.3%. It is not all encouraging though. The report shows that high prices caused the largest yearly fall in food stores sales since 1988.

The New York session will start at 8:30 am ET with Unemployment Claims that are still expected above 400K. More important Philly Fed Manufacturing Index for July is due at 10:00 am ET and is expected to increase to 3.4 from previous drop to -7.7 which was the first negative print since September 2010.

Traders should also note that at 10:00 am ET Fed Chairman Bernanke starts his testimony in Washington DC.

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