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European Session – Euro bounces back above 1.12 as markets digest Syriza win

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The euro has recovered from a dip to below $1.11 which occurred in reaction to the results of the Greek election in early trading today. The Syriza victory was widely expected by the markets but the failure to win a full majority raised uncertainty over what coalition government would be formed. It has been reported that there will be an accord between the left wing Syriza party with the right wing Independent Greeks party.

Even if the uncertainty of a coalition government is out of the way, difficult negotiations lie ahead to agree on a bailout with Greece’s troika of international lenders (IMF, ECB and European Commissions) and fears of a “Grexit” have been reignited. The current round of bailout funds expires on February 28.

However the more immediate risk for the euro will be Thursday’s Eurozone inflation data as well as the Federal Reserve policy announcement on Wednesday. The euro bounced back into the $1.12 handle to trade as high as 1.1276 going into the US session. Meanwhile, some upbeat German business sentiment data helped lend support to the euro. The Ifo index rose to its highest level in six months in January, climbing for a third consecutive month, as it increased to 106.7 in January from 105.5 in December, exceeding the 106.5 expected by analysts.

Sterling held onto gains made after Friday’s unexpected rise in UK retail sales which were forecasted to fall by 0.6% but instead increased by 0.4%. The pound mostly traded within a range during the European session today, between 1.4997 and 1.5044. A key risk event for the British currency will be Tuesday’s preliminary UK GDP data.

The dollar rose against the yen to reach a high of 118.47. The next key risk event for the dollar will be the FOMC statement on Wednesday. Today’s US session only has tier two data on the Dallas Fed manufacturing activity.

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