Currency Briefing - what you need to know for Wed Feb 22, 2012

There was a boost in Asian currencies, including the Singapore dollar, but it didn’t linger.

Justin Harper, IG Markets Singapore head of research, said:

The Singapore dollar, along with other Asian currencies, saw a temporary boost yesterday after the long-awaited Greek bailout package was approved. Traders were slightly less cautious after the deal was finally signed, although much of the upside had been factored into markets. But it could help improve risk sentiment going forward.

The Singapore dollar has been trading within a tight range against the US dollar of between 1.2510 and 1.2575 although it has been testing these boundaries. It starts the day at 1.2573.

But once the immediate relief was over for a Greek default it was back to business and the impact on currencies. Interestingly, the EUR failed to budge as markets were decidedly unexcited by the EU/Greek stalemate being resolved.

Traders are divided between those expecting a slight retreat in the Singapore dollar after its recent rally, and those believing the currency will hold onto its gains, at least for the short term.

With much liquidity sloshing around Asian economies, Singapore is still in the sweet spot for much of this spare cash. Today, mood-changing data comes in the form of China’s flash manufacturing PMI data. Asian currencies could get a boost if figures show the Chinese economy is slowing down at a gradual and controllable pace.

Meanwhile GFT reported:

The U.S. dollar ended the day unchanged or higher against all of the major currencies. With no major U.S. economic data released today, the focus has been on Europe.

The light economic calendar this week means that the desire for safety will be the dollar’s primary driver. The lack of a significant reaction to the Greek deal has sent some investors back into the arms of the greenback as they wonder for how much longer the market will be held hostage by Europe’s troubles.

RBS, on the other hand, noted:

The initial euphoria surrounding the announcement of the Greek deal faded during the US day on what was a quiet start to the US holiday-shortened week. USD pairs broadly traded in very tight ranges today and mostly unchanged compared to their levels when the US walked in.

In Global Currency Weekly this week we note that there are reasons to believe that EUR weakness may take hold now that the Greek deal is finally agreed upon. In particular, implementation risks remain high and rising oil prices may sap the generally improving growth momentum in the Euro-area.

Finally, expectations of the LTRO have been scaled back in recent weeks and the additional EURs added to the system should put downward pressure on the EUR. These risks leave us with a bias for a lower EUR and we currently hold short EUR/JPY, a pair that is trading more than 2 standard deviations above our current short-term "fair value" estimate.