Eurozone officials and the International Monetary Fund were unable to agree on a solution for Athens and publicly displayed their divisions about how best to deal with the country’s broken finances. The prospect of Athens now trying to pay off its own debt, while bailout negotiations continue, seems to have given investors another strong hint to build robust defensive strategies. In currency markets the reaction so far is a familiar one, with the US dollar and Japanese yen leading the safe haven rally. The greenback has quickly added to last week’s gains against the euro and the single currency is now staring at September lows. The euro could, however, offer some sort of opposition, should German investor sentiment data surprise markets. Sterling will also be looking to use the British inflation data as a shield against the US dollar and yen.
Sterling
Sterling closed above some very important technical support lines. This suggests that investors want to study British inflation data and the Bank of England report before deciding how close they want to stand next to the UK currency amid the latest Greek developments. The pound hit a nine-week low after traders maintained a risk-off approach to currencies.
US dollar
The US dollar was relatively steady with most market traders in the US enjoying a long weekend but the greenback is firmly back in the driving seat and has already broken fresh two-month highs against the euro. The US fiscal cliff debate is still developing, keeping a longer-term difficulty hanging over the currency’s head; however, the Greek crisis is intensifying which is subsequently pumping the US dollar full of safe haven demand.
Euro
The euro could use the German investor sentiment index to help put a stop, albeit temporarily, to its steep slide towards September lows against the US dollar. ZEW’s closely watched economic survey for November will help investors gauge just how much they need to worry about Europe’s powerhouse economy which has recently let off a number of signals pointing towards recession. Nevertheless, the single currency remains looking drugged by Greece’s debt infection. International lenders are still undecided as to whether Greece should be awarded more of its bailout money, although they agreed on Monday to give Athens another two years to get back into fiscal shape. With no financial aid forthcoming, Greece will now have to go out and do business in debt markets this week; failure by Greece to attract investment could hurt the euro and break market confidence as it has done many times in the past.