Euro Firm after Greek Bailout Approval

Euro remains firms today as Greece finally secured the long awaited EUR 130b bailout from EU finance ministers. The deal, which provides short term relief for Greece and aim to cut debt to GDP ratio from current 160% to 121% in 2020, was confirmed in a press conference in Brussels after a 13 hour marathon meeting between Eurozone finance ministers. The arrangement include a 53.5% voluntary write down of face value on bonds that private investor holds. And, according to the debt-swap arrangement, the coupon rate will be 2% in 2014 and rises to 3% in 2015-202 and then 4.3% after that. ECB will pass the profits of EUR 12b in Greek bonds purchased through its SMPP back to national governments as an indirect involvement.

Markets reaction to the Greek news is relatively muted. Euro is firm against other major currencies but there is no additional buying after the news. EUR/USD remains limited below 1.3321 near term resistance for the moment even though EUR/JPY extends recent rise and reaches as high as 105.96 so far. Dollar is staying in range against commodity currencies and sterling. Asian equities are in slightly in red and commodities are staying in tight range too.

The RBA released minutes for the February meeting, explaining reasons for its decision to leave the policy rate unchanged at 4.25%, instead of a reduction of -25 bps as expected by the market. The central banks appeared comfortable with the domestic economic developments though these might also be affected by the sovereign debt crisis in the Eurozone. It appears that the central bank will stand on the sideline in coming months but we are still of the view that a rate cut will materialize later this year especially if he AUD continues its recent advance. More in RBA Feels Comfortable With Current Monetary Stance As Growth Will Be Close To Trend.

On the data front, Japan all industry activity index rose 1.3% mom in December. Swiss trade balance and UK public sector net borrowing will be released in European session. Main focus today will be on Canadian retail sales which is expected to drop -0.2% mom in December with ex-auto sales up 0.2% mom. Canada will also release wholesale sales while Eurozone consumer confidence will be featured.