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Asian Session – Ukraine and Greece deal optimism helps euro hold 1.14

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Angela_Merkel_(2008)The euro managed to hold on to its gains of the previous session, as a peace deal in Ukraine and optimism that an agreement would eventually be struck between Greece and its creditors helped the currency.  The euro was trading at 1.1428 against the dollar, its highest since last week’s strong US employment report.

Greece would start talking to its creditors after a meeting between Eurogroup Chairman Jeroen Dijsselbloem and the new Greek Prime Minister Alexis Tsipras, ahead of another key Eurogroup meeting on Monday.  This was a reversal from the previous day’s news that Greece had been unable to agree on the format of talks between itself and its lenders during a special marathon Eurogroup meeting of finance ministers.  It appeared that both Greece and its creditors were willing to step back from their initial positions in order to seek compromise.  The German Chancellor, Angela Merkel stressed that Europe was about success through compromise and that this principle would hold in the case of Greece.  Still, a lot of tough negotiating remained on agreeing the details as well as the final bargain that Greece will manage to strike.

The US dollar was under some pressure following the weaker-than-expected retail sales for January.  This would probably translate into a lower growth rate for the first quarter of 2015 for the US.  Dollar / yen traded at a session low of 118.40, as news that the Bank of Japan would probably hold off further stimulus combined with the weak US data to bring the pair back below 120.

The pound was trying to stay over the 1.54 level against the dollar and the euro was close to yesterday’s 7-year low versus sterling (0.7371) as the Bank of England appeared more upbeat about inflation, growth and employment in yesterday’s quarterly inflation report.

The Australian dollar also managed to take advantage of the weakness in the US dollar as it traded around 0.7766, higher from the sub-77 level it was trading on weak employment numbers yesterday.  RBA Governor Stevens said in a speech that the economy was growing below trend and that inflation would stay subdued.  There was room for additional declines in the aussie as well as scope for more easing by the RBA.  However, the Governor questioned the efficiency of additional rate cuts, which cast doubt on scenarios that call for a series of aggressive rate cuts.

Looking ahead, the flash estimate of Eurozone growth for the final quarter of 2014 will be watched carefully as slow growth is a significant problem for the single currency area.  German growth, which was announced earlier, beat expectations, which could lead to a beat in the overall number.  Later in the United States, the University of Michigan preliminary consumer sentiment index will also be examined for consumer spirits in the world’s largest economy.

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