ECB Throws Greece to the Wolves

The ECB raised the stakes as Greece's new government prepares to meet with Germany on Thursday. They pulled the plug on emergency lending for Greek banks and sent the euro plunging; the US dollar rebounded strongly and was the top performer on the day. Australian retail sales are next.  2 EUR-related trades with 3 key charts have been issued in the aftermath of the ECB announcement and we're sent out to subscribers. See latest premium insights.

The euro gave back all its gains from a day earlier after the ECB announced it would end a waiver that allowed Greek banks to use Greek government debt as collateral for low-cost ECB funding. It won't cause an immediate bank crisis because it doesn't apply until Feb 11 but it's the kind of announcement that sparks a bank run.

The timing is no surprise with Tsipras in Germany on Thursday for tough negotiations. He made his political career on standing up to Germany so he won't be backing down on Day 1 and that probably means some euro-negative headlines will trickle out of the negotiating room.

The price action in the market was certainly a reminder that euros are unwanted as EUR/USD sank to 1.1313 from as high as 1.1539 a day earlier.

To be fair, it wasn't the only reversal as the entire market fell back in love with the dollars. It was doubly bad for the Canadian dollar as oil fell 8% and WTI hit $48.50. Ivey PMI data was also weak at 45.4 versus 53.9 expected and USD/CAD rose 1.5 cents.

Economic data in the US was close to expectations with ADP employment at 213K vs 225K exp but with a slight positive revision to the prior. ISM non-manufacturing was at 56.7 vs 56.3 expected but the employment component was soft.

Looking ahead, the Australian dollar is in focus once again with Dec and Q4 retail sales due at 0030 GMT.  The consensus is for a 0.3% monthly rise and a 1.1% increase in the quarter. On a very soft number it would quickly spark talk of a rate cut in March.