Euro Tumbles On Greece Deadlock

The euro tumbled sharply as the eurozone finance minister meeting failed to deliver. There was no agreement on the package of the two year extension, nor was there approval for the next tranche of bailout fund, which was on hold since June. The discussions in the meeting was "extensive" as Eurogroup president Juncker said and lasted almost 12 hours. But that only highlighted the deep disagreement the group is facing.

There is no clearly confirmed reasons for the delay, but a key issue is believed to be IMF's dissent to grant Greece extra two years to reach the deficit target by 2022. Juncker tried to sound positive and said that the Eurogroup "progress in identifying a consistent package of credible initiatives aimed at making a further substantial contribution to the sustainability of Greek government debt:. However, IMF chief Lagarde sounded cautious and only said that "we have narrowed the positions." Technically, focus will now on whether today's selloff in EUR/USD would extend back to retest recent low of 1.2661.

Speaking at the New York Economic Club, Fed Chairman Bernanke stated that "accumulating evidence does appear consistent with the financial crisis and the associated recession having reduced the potential growth rate of our economy somewhat during the past few years." Yet, he said the Fed lacks measures to alleviate the impacts of the fiscal cliff. He warned that "Congress and the administration will need to protect the economy from the full brunt of the severe fiscal tightening at the beginning of next year" as the fiscal cliff would "pose a substantial threat to the recovery" and "a fiscal shock of that size would send the economy toppling back into recession."

On the economic outlook, Bernanke remained cautious over employment and the housing market. He stated that "the unemployment rate is still well above both its level prior to the onset of the recession and the level that my colleagues and I think can be sustained once a full recovery has been achieved". While noting "some clear signs of improvement," he said that factors such as tight terms and conditions on mortgage loans would continue to dampen the recovery in the property sector. Given the fact that about 20% of existing mortgage borrowers has negative equity in their homes, it would be hard for them to refinance or sell.

BoE MPC member Weale said that inflation will likely remain above target for "much of the next two years" and he thought that additional stimulus would add to inflation "without any corresponding improvement in productivity." And "with stagnant or falling productivity, wage growth of even 2 percent per annum is at best barely compatible with the inflation target." And he warned that would make people think members of the BoE "do not take the inflation target seriously." BoE minutes will be a focus in European session today.

On the data front, Australian westpac leading index rose 0.7% mom in September. Japan trade deficit narrowed to JPY 0.62T in October. UK public sector net borrowing, US jobless claims, leading indicator of U of Michigan sentiment final will be released later in the day.