Intraday Market Thoughts

ECB to Unload Greek Bonds, Austerity Deal Nears

by Adam Button
Feb 8, 2012 2:35

The euro rallied to the highest since mid-December on reports that a draft Greek austerity deal is awaiting approval. The euro was the top performer while JPY lagged. Asian trading has been quiet with Japans trade deficit as the lone indicator. BERNANKE's testimony also boosted the euro and risk assets after the Fed Chairman played down Friday's stronger than expected US jobs report, thereby, maintaining market hopes/expectations for further easing measures.

On Wednesday, Greek cabinet members will review a draft austerity deal that will fulfill Troika demands and clear the way for a PSI deal. The news sent EUR/USD to 1.3270 from 1.3100. Its expected to be approved, which means Troika approval could come as soon as Thursday.

The Greek debt swap is set to commence on Monday with Greeks parliament expected to pass the austerity measures the day before. One hiccup may be revelations that Greek government revenues plunged 7% in January compared to an 8.9% rise expected.

The official contribution to the PSI deal was the final hurdle but it appears to have been settled, according to a WSJ report. They say the ECB will sell its Greek debt to the EFSF in exchange for EFSF bonds. The ECB bought the Greek bonds at a heavily discounted price but it appears as though most of the profits a reported 11B euros will be foregone. This could cause problems with no-bailout provisions in the ECBs treaty but thats unlikely since the ECB will not lose any money.

In the US, Bernanke read from the same script as last Thursday (pre NFP). In comments, he said 8.3% unemployment understates the weakness in the jobs market but made no mention of further stimulus.

The lone indicator released in Asia was Japans current account. At 303B yen it fell short of the 340B expected. The trade surplus was the lowest on record and current account the lowest since 1996.

Monday's euro and Aussie shorts were stopped out, oil short remain in progress and gold longs are partially done. Click here for more detail NONsubscribers can join here


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