Risk assets have stabilized with even Chinese stocks staging a strong bounce as regulators impose short selling restrictions and take other measures to prevent further carnage of their equity market. This allowed iron ore prices to recover a little and as a result the Aussie was given a boost with AUDUSD almost recovering to 0.7500, currently it’s trading at 0.7475. There was also better than expected Australian employment data overnight further supporting the Aussie allowing AUDNZD to bounce off the 1.1000 level.
The bounce in risk appetite will be tested today and for the remainder of the week as the Eurogroup waits to receive Greece’s latest reform proposals. The creditors resolve has been severely tested throughout this debacle and with patience wearing thin this time is Greece’s final opportunity to put forward something palatable. There is also a growing acceptance, at least from the IMF, that we have got to the stage where debt relief needs to happen in order to keep Greece in the Eurozone. But such a move increases the risks of contagion with the prospect of political upheavals in other debt laden countries seeking for their own debt write downs. Even if a deal is agreed there’s sign off required from the Greek and German governments, so plenty of hurdles to overcome in order to prevent a Grexit.
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