Euro unwinds on Greece risk

Activity will slowly start to pick up again this week with market participants making their way back to trading after a break. 

Source: Bloomberg

China and Japan return to trade after having been on New Year’s related breaks for most of last week. Attention is likely to be on Europe for the next few weeks as investors digest the developments from Greece and what this means for the euro. Comments made by Greek Prime Minister Samaras suggesting the country’s euro membership is on edge heading into the January 25 election and a Der Spiegel report saying Merkel is willing to accept a Greek exit sent the euro lower. There have also been reports suggesting former Greek Prime Minister George Papandreou is looking to form a new political party.

Additionally, ECB President Mario Draghi said odds of further QE are rising as pressure mounts for the Eurozone. EUR/USD dropped a handle and is now testing $1.2000. This is its lowest since June 2010 when it went down to as low as $1.1875. Europe’s CPI this week is likely to be a key catalyst for price action with analysts tipping the number to fall short.

AUD slumps to May 2010 lows

AUD/USD traded below $0.8100 and is headed towards the May 2010 low at $0.8065. Key events for Australia this week will be trade balance numbers tomorrow, building approvals on Thursday and retail sales on Friday. There will also be China’s CPI on Friday to look out for.

On the USD side of the equation, we are likely to see the greenback continue to edged higher heading into non-farm payrolls data later in the week. We also have FOMC meeting minutes due out on Thursday. This will give a bit more clarity on the Fed’s interpretation of the ‘patience’ reference.

ASX 200 in for a weaker start

Ahead of the open we are calling the ASX 200 down 0.7% at 5400. The leads are fairly confusing, but it seems we’ll see a mildly risk-off tone. Iron ore hasn’t traded and the price remains unchanged given China was closed. However, oil dropped further as production rises particularly from Russia and Iraq which will keep the energy names on the back foot. In the banking space there will be focus on traders manipulating the benchmark rate (bank bill swap rates) after ANZ suspended some of its traders during an ASIC investigation. 

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