Euro Firm Despite Greece News

Euro retreats mildly as the week starts but stays firm so far even though there were news that troika has rejected a EUR 2b part of the EUR 12b austerity package of Greece. Greek socialist leader Venizelos note that "troika has not accepted all the measures" but he assured there Greece has "alternative proposals."

Meanwhile, finance minister Stournaras played down the the news and said only a "few" measures was rejected. Troika came back to Greece last week for the review and is expected to "stay for a while." Prime minister Samaras is expected to meet with the Troika today to continue the discussion. Also, the Troika is expected to finish the final report for EU before the EcoFin meeting in early October for approving Greece's request for two year extension in its fiscal adjustment program.

European Monetary Affairs Commissioner Olli Rehn said over the weekend that ECB's Outright Monetary Transactions is a "very clear framework" and "there has to be a request by member state first" before EU, ECB and possibly IMF too, will define specific conditionality. Regarding Spain, Rehn noted that there are "clear path of fiscal adjustment" and "policy agenda for structural reform" already. And Rehn noted that Spain should have done enough to comply with the OMT's conditions should they seek help.

IMF chief Lagarde hailed that ECB gave a "clear indication of the framework in which it would be an active player in restoring the situation in the eurozone." And she pledged that IMF is "ready to help and to assist in the design and monitoring of eventual programmes." She also hailed that Spain and Italy had taken strong measures that were “adequate in and of themselves,” and said it's the country's decision to seek help or not.

Elsewhere, the dollar remains generally soft despite mild recovery. The weaker-than-expected payrolls made this week's FOMC meeting relatively more important even though no drastic changes are expected by the markets so far. Fed would release new economic projections and might push the low rate pledge into 2015. But there is just very slim chance that Fed would announce new stimulus, in particular considering the ECB's OMT announce had already given financial markets a very strong boost last week.

Latest CFTC report showed that on September 4, comparing to a week ago, net euro shorts was basically unchanged at 102.3k contracts. Net yen longs rose slightly from 21.5k to 24.0k contracts. Sterling positions remained relatively neutral, changed from 2k net longs to 6.9k net shorts. Australian dollar net longs dropped sharply from 78.0k to 62.4k. Meanwhile, Canadian dollar net longs rose for another week from 60.9k to 66.5k.

On the data front, Japan GDP was revised down to 0.2% qoq in Q2 while GDP deflator was revised higher to -0.9% yoy. The current account surplus narrowed to JPY 0.34T. Australian home loans dropped -1.0% in July. Japan household confidence improved slightly to 40.5 in August. Eurozone Sentix investor confidence will be released while US economic calendar is empty.