EUR/USD has declined lower after the ECB announced they would “lift the current waiver of minimum credit ratings …. issued or guaranteed by the Hellenic Republic ”. This action essentially removes the ability of the Greek commercial banks to use Greek government debt as collateral in return for low-cost ECB funding. Greek commercial banks will now have to access any funding requirements from the Greek Central Bank at a higher cost of funding. If the Greek Central Bank does not have sufficient funding to supply the Greek commercial banks, the Greek Central Bank can apply to the ECB for the funding through the Emergency Liquidity Assistance (ELA) facility, which comes at a much higher cost of funding. Greek commercial banks will bear a higher cost of funding as a result of this action.  The announcement by the ECB has come because “it is currently not possible to assume a successful conclusion of the programme review … in line with existing Eurosystem rules ”. In other words, because the Greek government is seeking new terms to the Trioka agreement.

We don’t anticipate this will have a long lasting negative effect on the EUR because it only directly affects Greek commercial banks cost of funding and is actually positive for the ECB’s credibility because the ECB are sticking to the Eurosystem rules.

EUR/USD has likely entered a period of consolidation, but further depreciation is anticipated over the course of the year.

USD/JPY

The USD recovered overnight but we doubt the USD will make new cyclical highs in the short term unless the rates market perception changes. The money markets have yet to bring forward the timing of the first Fed rate hike from late 2015 to mid-2015 despite guidance from the FOMC and the better than expected US non-manufacturing index. The non-manufacturing ISM rose to 56.7 in January (consensus 56.4) and the previous month was revised higher to 56.5. The sub-components of the report shows more mixed results. New orders rose 0.3 points to 59.5 but employment fell sharply by 4.1 points to 51.6 (lowest level since Feb 2014). The lower employment sub-components of the ISM manufacturing and non-manufacturing indexes combined with the softer January ADP job report (actual +213,00 versus consensus of +223,000) reduces the odds of a stronger than expected non-farm payrolls Friday (consensus: +230,000). This could limit near-term USD upside.

Longer term, diverging monetary policy trends between the US and most other major countries should support the broad-based cyclical uptrend in the USD. The European Central Bank (ECB) and Bank of Japan (BoJ) are committed to expanding their balance sheets, the Bank of England (BoE) is in no hurry to start raising interest rates and more People’s Bank of China (PBoC) reserve requirement rate cuts are likely. In the contrast, the Fed is on track to normalise rates this year. Non-FOMC voter, Loretta Mester, stated that she would be “comfortable with liftoff in the first half of this year ” because “there are accumulating signs that the economy is building momentum ”.

  AUD/USD

AUD/USD received modest and temporary support following news the People’s Bank of China (PBoC) cut the Reserve Requirement Ratio (RRR) by 0.5% to 19.5%. USD/CNH weakened slightly but is likely to further lift in the short term. Small banks and agricultural banks received an extra 0.5-3.5ppt cut to the RRR. Yesterday’s cut is the first reduction in the RRR since July 2012 and follows a 40bps cut to the benchmark interest rate in Q4 2014. The reduction in the RRR will make more money available for lending by the Chinese commercial banks.

We expected more easing by the PBoC in the lead up to the Chinese New Year given the usual liquidity squeeze. The PBoC announcement should support risk sentiment, but it is unlikely to change the medium-term downtrend in the AUD driven by lower commodity prices and lower Australian interest rates.

We expect the RBA to cut rates again in May, though the RBA may choose to cut earlier in March. The RBA will publish their downward revisions to GDP growth and inflation forecasts in the Statement on Monetary Policy on Friday. The Australia-US two-year swap spread should continue to narrow over the medium-term and guide AUD lower.

NZD/USD also received a modest lift from the PBoC news though AUD/NZD remains very heavy. We expect NZD to gradually lose steam  but think there is scope for AUD/NZD to decline towards 1.0475 by the end of the week, particularly if the RBA’s takes the axe to its growth and inflation forecasts on Friday.

GBP/USD

GBP is firmer overnight versus the EUR and USD following better than expected UK services PMI data. The services PMI rebounded to 57.2 in January. This more than retraced the decline in December. The UK services PMI has now been in “expansionary” territory for 25 straight months. When combined with the positive surprises in the UK manufacturing and construction PMIs earlier this week, the UK composite PMI has ticked up at the start of 2015. The domestic side of the UK economy should continue to be supported over 2015 by lower oil prices and the return to positive real wage growth. A gradual improvement in the Eurozone economy will also help support the external sector.

USD/CAD surged almost 2 big figures overnight towards 1.2600 because of falling crude oil prices and poor Canadian economic data. Crude oil prices plunged back below US$49 per barrel as US crude oil output remains large above 9 million barrels a days in January. The CAD also came under downward pressure after the Canadian IVEY PMI tumbled to 45.4 in January. While the data is volatile, this is still a low since December 2013. The employment component also dropped to 50.0 from 51.8 the previous month. Lower oil prices continue to generate an income drag on the Canadian economy and this is feeding through to the data. The risks to the Canadian employment report on Friday remain skewed to the downside which should weigh on CAD versus the USD and AUD.

i1.wp.com/www.forex10best.com/wp-content/uploads/2015/02/euro-ball_1280.jpg?resize=150%2C150 05 February 2015 forex10 Forex Analysis Zone AUD ,AUD/USD ,EUR/USD ,GBPUSD ,outlook ,USD/CAD

Forex Outlook EUR, USD, GBP, AUD, CAD EUR/USD EUR/USD has declined lower after the ECB announced they would “lift the current waiver of minimum credit ratings …. issued or guaranteed by the Hellenic Republic”. This action essentially removes the ability of the Greek commercial banks to use Greek government debt as.