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A positive start to the week

A positive start to the week

I am not entirely sure I can justify the title but there is no harm in being positive!

It is no surprise that the week begins with EUR on the back foot, again. The Greek issue rumbles on and given the the lack of direction in the talks, this may become a continuous footnote for the coming months*. Aside from Greece providing uncertainty for the market, today the ECB begins its quantitative easing program (seven years after the US). Quantitative Easing, however it is delivered to the market, increases the availability of EUR, and simple supply and demand dictates this will reduce the price. As the US ends its own QE programme, it is perhaps no surprise that analysts are eyeing parity for EUR/USD.

GBP/USD fell sharply after a strong payrolls report in the US increased speculation that the Federal Reserve would hike rates before the Bank of England (BoE). Throughout last week, the pair ignored the upbeat economic data in the UK, with the USD gaining ground across the board. With no major data due out of the UK today, the pair is likely to move in line with the EUR/USD pair.

Key events on the economic calendar this week will be the Eurogroup meeting (Monday/Tuesday), Chinese Inflation Data (Overnight Monday/Tuesday), speeches by Fed Presidents Kocherlakota and Mester, and US retail sales (Thursday). There is also an expectation for Russia to cut its policy rate 100bp on Friday to support economic growth, despite recent higher inflation numbers.

* Continuous footnote: the Greek government was criticised by the Eurogroup, who stated the last proposal put forward by the Greek’s fell well short of those that were agreed upon a couple of weeks ago. Greece is now threatening a referendum on whether to push through further austerity or … not.

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