Euro Fatigue Amid Unclear Greece Signals

Greece officially announced an austerity deal but doubts still linger. EUR was the top performer Thursday while JPY lagged badly. The RBAs economic outlook acknowledged revised down GDP growth but was not sufficiently clear on the reason for holding rates unchanged. EUR/USD fell short of our second long target of 1.3330. Gold and oil trades are in progress, while AUD/USD long is done. EUR/GBP long on track.

Greek politicians appeared to hammer out an austerity deal that would be acceptable to the Troika. The previous sticking point on pensions was solved with larger military cuts. The euro climbed to a two month high of 1.3322 on the news.

The euro was also boosted by the ECB decision. Rates were held at 1.00% and Draghi noted that the economy is stabilizing at a low level. Further helping risk appetite were US jobless claims, which fell to 358K versus 370K expected.

The euro began to drift lower on a multitude of questions about the Greek deal. First, the official release stated that a general deal was reached, which suggests that negotiations arent completed. Next, a Greek deputy minister resigned in protest and he is said to be a favourite in the April election. Finally, EU leaders said the Troika will not approve more bailout funds until the deal is ratified by Parliament something that sends a signal of distrust.

Greek Parliament isnt scheduled to vote on the austerity bill until Sunday so the no disbursement until implementation rhetoric from the Troika leaves Greece in a very tight timeline if it wants to begin the PSI swap on Monday.

The RBA's quarterly Statement on Monetary Policy cut its June 2012 GDP fcst to 3.5% from 4.0% and acknowledged the signs of economic stress in the Eurozone. It also mentioned rising cost of banks' funding costs relative to cash rate, which may explain the bank's decision to not have cut rates.