Greece and Germany Square Off

The hours are winding down on the latest supposed deadline in Greek negotiations, we break down what to watch for. On Thursday, the US dollar recovered from the post-FOMC minutes drop and was the top performer while the Swiss franc continued to lag. The Asia-Pacific calendar is quiet as Lunar New Year holidays continue.  Our Premium trades include GBPUSD, GBPCHF (currently netting 180 pips), GBPUSD( +50 pips), USDCAD, NZDCAD and AUDNZD.

The Greek austerity fight has morphed into a five-year battle with the generals in Athens and Berlin. At other times, the market would have jumped or plunged on Thursday's headlines and rumors of a deal extension or not but the market was generally tuned out.

But there could be a knockout blow (or at least a knockdown) on Friday. MNI sources reported that many Eurozone members feel a deal is close enough for compromise but Germany is driving a hard line. A letter from Berlin said the Greek bailout extension request should be three sentences not thirty pages and boil down to 'we will honor current agreements.'

EUR/USD also reflects an unease, uncertainty and perhaps a disinterest until there is some clarity. It has settled back into the middle of the recent range close to 1.1365 after a failed attempt at 1.1450 on Wednesday.

A question that troubles us is, what is the real deadline? The posturing of the deal suggests it's Friday but unless that is the true last minute (it's probably not) then one party or another will grandstand. At least that has been the pattern for the past 5 years. Deals in Europe just don't get done until the last minute, that leaves considerable headline risk on Friday as Germany tries to score some political points before the true deadline.