The EUR has been broadly stable recently, mainly on the back of rising expectations of EU officials getting closer to a solution for Greece. German Chancellor Merkel, for instance, suggested that compromises can be made when the advantages outweigh the disadvantages. However, it must still be noted that Greece is ultimately trying to receive much easier bailout conditions. This is especially true as Greece’s Finance Minister Varoufakis stressed on Friday that a debt reduction is still favoured over an extension of the bailout.
In any case today’s focus shifts to the Eurogroup meeting. Although there is room for positive developments we remain of the view that EUR upside risk is limited related to Greece. Accordingly we remain short EUR/USD.
Overnight risk sentiment was stable with most Asian stock markets trading higher at the time of writing. The main focus was on Japanese growth data. At 0.6% QoQ (prev. -0.5%, cons. 0.9%) Q4 GDP was released below expectations. However, the latest data had only limited currency impact. This is due to low expectations of the BoJ turning more aggressive as soon as this week.
Nevertheless, we remain of the view that the JPY should be sold on rallies, in particular against the USD. Although the most recent US data indicates more muted growth prospects, we expect a trend of improving US growth conditions to stay intact to the benefit of Fed rate expectations and the greenback.
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