ECB to Review Greek ELA, Pressure on EUR

Forex News and Events

EUR remains under pressure as Greek reform negotiations look to have stalled, and despite decent PMI manufacturing reads across Europe. The most recent news flow from Brussels and Athens indicate no agreement will be reached before Easter. This does not look well for a debt repayments starting April 9th to the IMF. Worryingly, ECB policy makers will examine their current Emergence Liquidity Assistance (ELA) strategy to Greece. Greek banks have seen massive deposit outflows for a sixth month and depends on lending from the Greek central bank to say liquid. Recently the ECB raised the amount the Greek central banks can lend to domestic banks to €71.1 billion. The funds from the ELA is keeping Greece afloat (after the ECB suspended banks use of junk rated Greek bonds as collateral). The ECBs governing council will be holding their weekly review and will study if further lending to risky Greek banks (which are channeling funds to the Greek government) is advisable. The ECB balance sheet is now ramping up (€2246bn) with heavy TLTRO loans to banks and ECB buying of government bonds. We remain significantly negative on the Euro and EURUSD. Yesterday’s EURUSD close below the 21d MA at 1.0780 indicates a bearish move towards 1.0458. EURGBP, safely below 65d MA indicates sustained bearish momentum, targeting 0.7000 cyclical lows. Elsewhere, it seems ECB President semi-covert strategy of debasing the EUR to stimulate growth looks to be having a positive effect. Euro area PMI manufacturing came in at 52.2 verse 51.9 exp/prior while German PMI manufacturing rose slightly to 52.8 verse 52.4 exp/prior. Clearly Europe is exhibiting signs of “green shots”. The good economic numbers will support European stocks after a strong March. In the US session, the heavy US data starts today. ADP is anticipated to show that 225k jobs were added in March following February 212k read.

Don’t Count Switzerland Growth Out Just yet….

Swiss PMI manufacturing surprised to the upside coming in at 47.9 verse 47.5 exp and 47.3 prior read. There were solid increases in output at 49.8 from 47.3 and quantity of purchases at 46.8 from 41.1. In addition, purchase price also increased to 26.3 from 12.9. Interestingly, while Swiss corporates names were crying, “end of days” and “economic tsunami” post SNB decision to remove the EURCHF floor, todays PMI and yesterday’s Swiss Kof leading indicators are telling a different story. The KoF indicator unexpectedly rose slightly to 90.8 verse a broadly expected decline to 88.0 as solid domestic spending (consumption) offset fall in exports due to the strong CHF. The index is designed to predict the direction of the Swiss economy over the next 6 months. While the Swiss economy is clearly feeling the effect of the SNB decisions to end the cap, as sentiment in construction and financial sector deteriorated further, the potential the downside is not as large as originally prophesized. In fact according to the Kof institute Switzerland is now expected to see growth in 2015. Due to QE and unresolved Greek crisis and expectations for a modest recovery in Switzerland, we are bearish on the EURCHF. EURCHF is now testing the lows not seen since February at 1.04198 low. Break of downside should trigger an extension of bearish momentum to 1.0200. Policy divergence should drive USDCHF higher. USDCHF continues to bounce above 0.9695 hourly resistance indicating improvement in short term buying interest. Traders will be focused on the next resistance area located at 0.9984.