After much drama over the week, on Friday, Greece finally secured a provisional deal from Eurozone finance ministers to extend the bailout for four months. However, Greece will only get the financial aids as it meets certain conditions. And German finance minister Wolfgang Schaeuble emphasized that "as long as the program isn't successfully completed, there will be no payout." According the to agreement, Greece is required to introduce a series of reform and showed that the government is not abandoning austerity. Meanwhile, the previously agreed targets on reaching a primary budget surplus was lowered, which could help prime minister Alexis Tsipras to fulfil his election promises. Some analysts noted that it's only a temporary solution and Greece will enter into negotiations again with creditors again very soon. But for now the Euro might get some support and have a recovery earlier this week.
Elsewhere, the FOMC minutes for the January meeting appears more dovish than expected. Policymakers retained the 'patient' language as some members were concerned that removal of which too soon would trigger the market to price in tightening too quickly. On the economic outlook, the near-term inflation outlook was revised slightly lower due to further declines in oil prices, whilst the inflation forecast for 2016 and 2017 was 'essentially unchanged'. More in Fed Revised Lower Short-Term Inflation Forecast, Remained Patient On Tightening.
The BOE minutes showed that the members voted unanimously to keep the Bank rate unchanged at 0.5% and the asset purchase program at 375B pound. Yet, the details unveiled that division was seen among the members over the monetary policy outlook. 2 members (presumably Martin Weale and Ian McCafferty) still favored rate hike later this year while another suggested that chance of tightening and easing in the next move was similar. Overall, the minutes continued little news after release of the quarterly inflation report last week.
The BOJ left the monetary stance unchanged in February. That is it would conduct money market operations so as to increase the monetary base at an annual pace of about 80 trillion yen. Policymakers appeared more upbeat over the economic outlook although GDP growth in 4Q14 missed expectations. Acknowledging that lower energy costs would prolong the period of returning to inflation target of 2%, the BOJ, excluding the effects of the tax hike, forecast inflation would hover around 0.5%, down from previous estimate of 0.5-1.0%. More in BOJ Kept Powder Dry As It Raised Economic Outlook
In the currency markets, Canadian dollar was the weakest one as pressured by weak economic and as rebound in crude oil lost momentum. Swiss Franc extended post SNB pull back but started to lose momentum. Aussie and Kiwi were the strongest currencies as lifted by risk appetite while US dollar followed. The dollar index extended recent consolidation pattern from 95.48. We'd expect more sideway trading ahead and any downside attempt would likely be contained by 92.15 support, which is now below 55 days EMA. We'd expect up trend to resume sooner or later by taking out 95.48 resistance decisively.
Regarding trading strategies, we were still correct with the EUR/GBP but downside momentum was fading rather quickly. It now looks like the cross could reverse ahead of 0.7250 support zone. Thus, we'd prefer to close out the short position first. A key development to note is the possibly reversal in swiss crosses. However, Euro could be supported by the Greek news initial this week which might push EUR/CHF mildly higher. Dollar also showed no clear sign of return to strength yet. Thus we'll only start monitoring the development in swiss crosses first. We expect swiss France to rebound soon, but we'll be patient on it.