US Dollar Retreats as EU and Greece Debt Talks Ongoing

The U.S. dollar started the week on a strong rally after the release of the non farm payroll figures last week. European economic data was mostly positive with a surprising 0.7 percent GDP growth from Germany leading the way. Greek debt talks stalled this week as neither side made concessions and next week is crucial as the end of February deadline approaches. Next week’s trading will be dominated by central bank minutes, inflation releases and the ongoing Greek bailout agreement saga.

The stronger than expected U.S. employment data boosted the USD after what had been almost a month of disappointing U.S. releases. The stronger employment will put pressure on the Federal Reserver to raise interest rates sooner rather than later. The latest forecasts call for an increase to the benchmark rate as early as summer of 2015. The EUR/USD broke through the 1.14 price level after starting the week at 1.1330 as week progressed the U.S. data was softer while the European data boosted the EUR along with the Greek debt negotiations less combative tone.

The NFP report is looking like an outlier after core retail sales declined by 0.9%, while retail sales dropped by 0.8%. Both were well off their estimates of 0.4%. There was no relief from unemployment claims, which jumped to 304,000 compared to 284,000 in the previous reading. The markets had expected a stronger reading of 282,000. U.S. retail sales numbers have a history of deflating the dollar rally. The preliminary U.S. University of Michigan consumer sentiment fell unexpectedly last month to 93.6, from 98.1 in the previous month with most of the estimates around no change.

The U.S. Commodity Futures Trading Commission (CFTC) released its Commitments of Traders data which showed speculators reduced its U.S. dollar long positions in the latest week. The dollar’s net long position was $44.51 billion last week, from $45.82 billion the previous week. Dollar net longs have been above $40 billion mark for seven straight weeks. Net euro short contracts also dropped to 194,641, equivalent to about $27.5 billion, from 196,309 contracts the previous week. The E.U. and Greece’s made last week’s short euro bet the largest in two and a half years.

European finance ministers met in Brussels on Wednesday, but were unable to bridge the gap between Greece and its creditors. The bailout agreement expires at the end of February, and the next bailout payment of about EUR 7 billion is on hold as Greece has declared it will not abide by the austerity steps which are required to receive the funds. Greece is looking for bridge financing until a new deal can be reached, but Germany and the troika have balked at rewriting the agreement. The finance ministers will reconvene on Monday.

Next week Federal Open Market Committee (FOMC) and the Bank of England’s Monetary Policy Committee (MPC) minutes will give some insight into how policy members voted giving some hints about a rate hike this year. The position from Greece has softened somewhat after Prime Minister Alexis Tsipras said that they will do “whatever they can”