Market Brief
Risk appetite has been slightly increased during the Asian session, sending equity indices marginally higher and providing EURUSD with time to consolidate gains. Clearly the market is still digesting the implications of the Greek bailout package. The trigger for this turnaround in risk sentiment was the overnight release of China's China HSBC flash PMI improves to 49.7, from 48.8 in January but slightly below markets expectations. While the read is encouraging, as the trend is up, the below-50 print indicates that industrial activity remains soft. Not surprisingly the biggest beneficiary of this read was AUDUSD; with strong recovery in China strongly correlated with the price action of the AUD. AUDUSD was able to rally of the session low of 1.0610 to 1.0686. EURUSD bounced around the 1.3211 and 1.3250 area clearly lacking directional momentum. The lack of bullish direction is due primarily to the fact that fix income is bracing for a Greece credit event. USDJPY break of the 80.00 could only trigger minor barriers taking the pair to 80.08 highs. USDJPY remains supported as increasing US yields, rallying energy prices and growing appetite for carry trades. Japanese FM Azumi stated that a new IMF strategy had not been defined for funding Greece. This is similiar to IMF president Lagarde's comments at the Eurogroup meeting that the IMF had not yet reached conformity upon its exposure to the new Greek bailout package. Looking at the Asian bourses, the Nikkei is up 0.96% on the day, the Hang Seng 0.12%, and the Shanghai Composite up 0.84%.
As for today, traders will be watching a string of Euro zone flash PMIs to show another improvement in confidence, although we expect the gains to be slightly more moderate than expectations. Markets expect the Eurozone composite index to edge up moderately, to 50.5 from 50.4, pointing to an anemic level of growth; however, the uptick should be seen as positive contribution to Q1 GDP. The other scheduled event to watch will be the BoE minutes. Markets expect the MPC to have continued to vote unanimously to hold bank rate at 0.50% while the vote for the asset purchases to go 8-1.
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