But things can turn ugly again in Europe, as “markets do not fully appreciate the challenges that Greece and the Troika are facing in the next few weeks, during the first program review. Even though our baseline scenario is that Greece will be able to conclude this review, we believe that markets could soon get concerned about the risks involved” according to Michaela Moran from the BofAML. The bank, estimates that Greece needs in between €5bn to €20bn to close a funding gap during the program period (2012-Q12016) and at least €40bn to bring debt dynamics back to the program path. And the major risk seems to be Greece failing to implement new austerity measures, or the EU unwilling to continue funding the country.
In the meantime, US Jackson Hole symposium will begin on Thursday, and with FOMC minutes revealing that easing is on Fed's radar, Bernanke's annual speech at the Jackson Hole is expected to offer some clues reveal more details on the near-term path of monetary policy; market players have not wasted time and rushed to price QE3 over the past couple of week.
Positive market sentiment has faded somewhat today, leaving US dollar up across the board, except against Japanese yen. As usual, European governing actions are more about market talks and hopes, than real action. “ European headlines are contributing to a more cautious mood, including a report suggesting that the ECB may wait for the German Constitutional Court ruling on the ESM before announcing the details of its bond purchase plans. There is also considerable nervousness surrounding the ongoing talks between Greece and European leaders, with few significant announcements made at this stage” reports the Wells Fargo economics group.