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Euro Dives after Latest Greek ‘Rescue’

If the Eurogroup’s progress in securing Greece fresh accommodation was a step towards restoring stability and growth to the Eurozone, you wouldn’t be able to tell from the currency’s performance. In fact, the euro has slid against all of its counterparts (with the exception of the Swiss franc) since the additional measures for the region’s most debt-laden country were announced. Perhaps this is a sign that the market’s are learning – or at least acclimating. Though the group announced plans to offer a €43.7 billion payment, reduced loan rates, returned profits on debt, an extended payback window and a bond buyback program; the market recognized two things: a bid to buy time and contingencies. These measures do not solve the long-term recession the country is suffering. Just as important to those that have been disappointed by the EU Summit in late June and ECB’s OMT program in September, there are conditions that must be met before these measures are activated. At this point, the euro has processed the Greek news and is looking for another driver: perhaps underlying risk or even a revival of Spain concerns.

Japanese Yen Threatening Bigger Rebound

The Japanese yen has turned to congestion and is now threatening a rebound. The aggressive decline from the renowned funding currency was partially helped along by the advance in risk trends over the past few weeks, but the escalated threats by policy officials to remove all stops to ongoing stimulus has pulled more than its fair-share of the currency’s tumble. The only problem with that factor as an active selling point is that both the DPJ and LDP parties have laid out the measures they plan to take should they secure the election. The market has priced in the verbal threats and now has until December 16 before we actually see these threats fulfilled. In the meantime, a risk aversion move can take the yen.

British Pound Bypasses Data, Breakout Readings High

We had a round of UK data this past session, but the pound offered little immediate reaction to its release. That was likely because it was a second round release of the 3Q GDP figures. The headline figures changed little (the year-over-year growth reading actually reported a 0.1 percent contraction), but the components showed notable change with an increase in government spending and exports while fixed capital formation and consumption slipped. More interesting to sterling (specifically GBPUSD) traders should be the backdrop yield and activity reads. The yield differential between UK and US 10-year yields is the highest since February and GBPUSD activity (ATR) is near the lowest in years.

New Zealand Dollar Unfazed by RBNZ’s Warnings, CPI Forecast

Risk trends don’t seem to elicit much of a rise out of the kiwi nowadays, but that is likely due to the lack of momentum behind the sentiment trends. In this environment, standard fundamental releases could have more of a impact – if only there was substantial change. The RBNZ’s 2-year CPI outlook for the 4Q printed unchanged at 2.3 percent. And Governor Wheeler offered a weak concern over the impact of the high kiwi.

Australian Dollar: Unless RBA Cut Outlook Drops Below -50 bps, Watch Risk

There was something of a buffer for the Australian dollar in interest rate expectations as long as risk trends weren’t showing heavy momentum. That said, the improvement in the 12-month rate forecast for Australian (from a forecast of 150 bps worth of cuts) seems to have hit a ceiling with the outlook capping off at 50 bps of easing over the same period. Without this fact, Aussie pairs will turn back to the risk bearings.

Gold Retreats after Short-Lived Rally to 1750

Gold was bound to have found a sharp through the end of last week or the beginning of this week given the extreme congestion surrounding the metal. Yet, the bullish run on Friday lacked for the necessary ingredients in follow through. With the Greece threat seemingly on ice and risk trends fading, this commodity is once again clearly taking direction from the dollar. If the USDollar overtakes 10,000, gold can quickly drop 1725.

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--- Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com

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