Euro Mildly Lower as Focus Turns Back to Greece

Euro is mildly lower as the week starts as focus turned from economic data back to the situation in Greece. A pressing concern is the agreement on the Troika's terms for austerity.

Greek coalition leaders failed to agree on the details of the terms demanded by international creditors after a five hour meeting with Prime Minister Papademos on Sunday. It's reported that while the principles to cut spending in 2012 by 1.5% of GDP, or EUR 3.3b, was agreed, the three party leaders' view on details differed. And there are two big issues left, labour and banks.

Papademos then met with troika later on Sunday together with Finance Minister Venizelos and Labor Minister Koutroumanis. Now, the situation is, the three party leaders are required to give their first response to proposed measures by noon today so that it be taken into Euro working group in brussels. On Saturday, Eurozone finance ministers told Greece that it could not go ahead with the PSI debt swap deal unit the reforms are guaranteed.

IMF cut China's GDP forecast in 2012 to 8.25%, down from prior projection of 9.0%. That's a significant slowdown from 2011's 9.2% growth rate. IMF note that "China's growth rate would drop abruptly if the euro area experiences a sharp recession." Nonetheless, IMF said that "China has room for a countervailing fiscal response and should use that space" to provide more stimulus to the domestic economy. And IMF urged that that "monetary conditions should be fine-tuned to allow for some modest additional credit to the economy."

Australian dollar is slightly lower today as dragged down by disappointing retails sales data, which unexpectedly dropped -0.1% mom in December versus consensus of 0.2% mom rise. TD securities inflation also dropped to 0.2% mom in January. Aussie is also somewhat weighed down mildly by rate cut expectations. RBA are expected to cut the cash rate by -25 bps to 4.0% tomorrow. This third consecutive rate cut since November would bring the country's monetary policy to mildly accommodative from neutral. Given high uncertainty in global economic outlook and weaker tone in recent domestic developments (rising unemployment, benign inflation and appreciation in AUD), we believe a rate cut is justified. The RBA will release its quarterly Statement on Monetary Policy and policymakers should use this opportunity to communicate more about its rationale of the new policy settings.

As for today, Swiss foreign currency reserves in January, Eurozone Sentix investor confidence and German factory orders, as well as Canada Ivey PMI will be released.