Euro rebounds from 1-month low on optimism of a Greek debt deal: May 28, 2015

Market Review - 27/05/2015 22:43GMT 
 
Euro rebounds from 1-month low on optimism of a Greek debt deal

Despite euro's brief drop to 1.0865 in Asian morning on Wednesday, short-covering above Tuesday's near 1-month low of 1.0863 lifted the pair to 1.0929 in European morning but only to fall again to a session low at 1.0819. Euro later rebounded strongly to 1.0911 on optimism over Greek debt in New York after Greek prime minister Tsipras said 'we have made many steps, we are on final stretch towards positive deal; we will present details on deal soon; there are still different approaches among lenders; wages and pensions will be paid normally this week; there is no risk to bank deposits.'

Greek government official said 'Brussels group has started procedures to draw up a staff-level agreement; PM Tsipras will have constant communication with leaders conclude a deal; framework of deal will include low primary surplus target for first year, no recessionary measures; deal will include wage n pension cuts, VAT reforms, investment package and long-term debt relief; problem of differences among creditors remains, deal would have closed already if IMF's agreement was not required; it is time for creditors to assure their responsibility towards Greece.'

The greenback continued its winning streak on Wednesday .Despite brief retreat from Asian high at 123.31 to 122.78, renewed buying quickly emerged in Europe. The pair easily pierced through 123.33 res on dovish comments from Japanese officials and rallied to a fresh near 8-year high at 124.09 on dollar's broad-based strength, just shy of 2007's July peak at 124.14.

Japan Chief Cabinet Secretary Yoshihide Suga said excessive FX volatility undesirable but current pace of yen decline hasn't reached that level yet; will continue to monitor FX moves carefully.

BoJ Deputy Gov Iwata said 'there's a risk inflation expectations will fall in Japan if underlying prices keep falling; FX ought to move in a way reflecting fundamentals; will continue to monitor carefully how FX moves affect economy; can't rule out chance falling electricity bills may hurt inflation expectations though possibility small; see no sign of financial imbalances brewing in japan for now; current rises in Japan stock prices reflect record profits reaped by many japan companies; quality of assets, not just quantity, is important in maximizing effect of BoJ's stimulus programme.'

Japan FinMin Aso said 'in general, rapid forex moves undesirable.' Japan EconMin Amari said 'moderate FX movements important; recent FX moves reflect dollar's gain rather than yen's fall; no need to overly react to U.S. exit strategy but it has impact on FX market.' Japan government keeps economic assessment unchanged in May and said 'economy is on a moderate recovery trend; raises view on consumer spending for 1st time in 10 months.'

Although cable staged a brief bounce to 1.5437 in European morning on Wednesday, the pair ratcheted lower and penetrated Tuesday's 1.5354 low to 1.5319. Cable then rebounded to 1.5368 in tandem with euro on optimism over Greece debt but only to fall to a low of 1.5301 on active cross selling in sterling before recovering in late New York.

Thursday will see the release of Japan's retail sales, Australia's building CAPEX, Swiss industrial orders, U.K. Q1 GDP, eurozone business climate and consumer confidence, Canada's production prices, U.S. pending home sales.