Forex News | Currency News by Forexlive

The frightful move in markets are the result of several headlines from Reuters:

ECB stops monetary policy operations to some Greek banks as recapitalization  not in place, according to central bank sources.

Schaeuble piling on as well, saying it’s questionable whether all European states should be in the euro.

• A Greek euro exit is not for the ECB to decide

That’s a long way from Trichet calling the idea an “absurd hypothesis”. In December, Draghi talked about the potential consequences of a country leaving the bloc, saying “you never know hit it ends really”

• ECB worried about Greek bank recapitalization delay
• Considering freezing lending to Greek banks

Duke’s main comments were about housing, noting a small improvement but Fed policymakers now mention tax and spending uncertainty in nearly every speech.

• FOMC minutes this afternoon
• Fed not as worried on the economy as many fear
• Ready and willing to do more if economy worsens

That’s helping give the dollar a lift, along with the Greek news. Anything which makes QE3 less likely is a broad dollar plus.

MNI Fedwatcher Steve Beckner reads the tea leaves  (part 2)

It would take more than a European financial crisis by itself to induce the FOMC to launch QE3, however. Policymakers would also need to see a combination of slower growth, disappointing employment numbers and confirmation that inflation is subsiding as the FOMC has been predicting.

MNI has a great story detailing recent ECB comments about Greece leaving the eurozone.

It underlines a subtle shift in rhetoric — instead of denying the possibility of a Greek exit, officials are  attempting to sooth fears.

What the ECB had dismissed as “an absurd scenario” has suddenly become a very real possibility for Eurozone central bankers, who now say the consequences would be “manageable,” not catastrophic.

The ECB should be lauded for this approach. We all know that from a purely economic perspective, the loss of Greece would be next-to-nothing. The greater risk is from contagion — bank and bond market runs elsewhere — which is primarily an emotional response.

If the situation is lost, the aim for officials should be a slow, managed Greek exit with frequent assurances. The trick will be convincing the market that Greece is different from the rest of the periphery.

• Ready to defend peg with utmost determination
• Further franc gain would threaten price stability
• Ready to take further measures if needed

Nothing will happen in EUR/CHF until we’re all bored to tears. We’re not there yet but I’d say we’re a month or two away.

1. Turmoil
2. Crisis
3. Panic

Those are the three stages of a financial calamity like the one  in Europe. For a time after the LTROs it looked like the crisis was easing back into turmoil but that’s no longer the case.

Instead, the crisis is arguably at its worst point. For now, the markets are orderly but the longer Europe remains in crisis mode with no sign of official action, the higher the probability of a disorderly rush to safety.

The low print on EUR/CHF today on EBS was 1.2009 but some broker screens have printed lower. The Swiss National Bank better ready its firepower because the battle is coming.

• Imposing cap was extraordinary measure
• Was not a competitive devaluation
• Cap’s purpose is to counter distortions

Sounds like he’s on the defensive –  nothing here that would point to a higher cap. Of course, every day that the eurozone gets closer to the abyss, the franc is less overvalued.

EUR/CHF doesn’t move a pip.

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