Euro Firm With Focus On Greece, FOMC Minutes

Euro maintains yesterday's gain against the dollar and yen as markets are awaiting Greek prime minister Samaras' meeting with Luxembourg prime minister Juncker. Samaras, who's expected to propose a two-year extension for the country's fiscal adjustment program, urged European leaders to give it "breathing space" to revive the economy quickly and raise state income.

He emphasized that Greece demands "no additional money" and will stand by their "commitments." But Samaras also noted that the country needs to "kick-start growth in order to cut our deficit." On the other hand, Samaras will also need to persuade Juncker, as well as German Merkel and French Hollande later in the week, Greece's commitment and thus approve the release of EUR 31.5b of funds next month to avoid a default. Merkel and Hollande will also meet to "discuss flexibility in return for assurances and the two want to have a common line before the arrival of the Greek prime minister" according to a German spokesman.

Another focus today will be the FOMC minutes. Comments from Atlanta Fed's President Dennis Lockhart tamed QE3 expectations. He said that "there is a risk to monetary policy being employed too aggressively and without effect to address economic problems that can be resolved only by fiscal reforms that involve making tough choices about the allocation of public resources."

He also stated that it's appropriate to keep interest rates at exceptionally low levels through late 2014. Fed Chairman Bernanke will speak in the traditionally important Jackson Hole symposium at the end of the month and it's increasing likely that nothing special would be announced there. The FOMC minutes to be released today should affirm this fading expectation.

On the data front, Japan's trade deficit widened slightly to -0.33T in July with exports dropped -1.1%mom, or -8.1% yoy while imports dropped -0.9% mom and rose 2.1% yoy. Note that exports has dropped on a monthly basis for the third consecutive months while imports dropped for the second consecutive months. Australia Westpac leading indicator rose 0.5% in June. Other data to be released include Canadian retail sales and US existing home sales.

Technically, one important development to note is that while S&P 500 breached 1422.38 resistance and made new 2012 high at 1426.68 overnight, tremendous selling pressure was seen from there while pushed index to close -5 points lower at 1413.17. We'd maintain our view that S&P 500 should be close to reversal. 1400 psychological will be watched close for the rest of the week. Break will likely trigger some more sell-off in the already weak aussie, a recovery in USD/CAD and some pull back in yen crosses.