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The first full trading week of 2015 has started off with a bang, as volatility takes center stage in currency markets and risk adverse behavior has traders continuing to bail out of commodities.   Global equities have been trading heavy to start the New Year, and this looks set to continue with the showdown in Greece intensifying as the parliamentary elections at the end of the month draw closer.

The euro has been a big mover overnight, with the common-currency battered on developments over the weekend that caused a barrage of sell-orders to hit the market at the Asian open and drive EURUSD to the lowest level seen since March of 2006.  Particular attention was paid to a news article crossing the wires in which a source within the German government cited Merkel as now considering Greece’s exit from the Eurozone manageable, given the progress made in other periphery regions like Portugal and Ireland.   This comes on the back of Merkel’s chief advisor saying that Greece is no longer in a position to “blackmail” the Eurozone as they are no longer of systematic importance to the euro; appearing as if the German government is gearing up for a potential stand-off should Syriza secure a majority government if elected into parliament at the end of the month.   While the majority of Greek voters still wish to remain in the EMU, and a vote for Syriza isn’t a vote to exit the union, investor concern around another battle over Greek debt restructuring will do little to instill confidence in financial markets.

The “Grexit” fears combined with Draghi’s comments on Friday that the ECB was preparing to alter the size and composition of their balance sheet expansion in early 2015 has reignited the downdraft in EURUSD, with the pair collapsing to pivot around the 1.19 handle.   Not helping the pronounced offer tone in the euro was the fact that German inflation data came in on the soft side of expectations, with the harmonized annualized reading dropping to only a 0.1% increase compared to the 0.5% increase registered in November.   The weak inflation numbers in Germany both increase the likelihood that Bundesbank’s opposition to sovereign bond purchases eases because of their regional disinflationary pressures, while at the same time amassing greater confidence thatWednesday’s flash print for the overall zone comes in a -0.1%, levying further pressure on Draghi to stabilize falling consumer prices.   January will be an important month for the euro with the ECB meeting and Greek elections both taking place at the tail end, and it’s likely the associated volatility with market posturing is far from over.

Heading into the North American open, there is little economic data to digest for the first trading session of the week, though US auto sales will be filtering through the market over the course of the day.   Consensus expectations from economists are for pace of 16.9M units in December, though lower gas prices and a stronger labour market could be the catalysts for a surprise to the upside.   Speaking of lower energy prices, the bloodbath in crude looks set to kick-off the New Year right where 2014 left off, with front-month WTI under selling pressure as Texas Tea crumbles to the $51/barrel handle.   The renewed slide in hydrocarbons combined with the broad-based DXY strength has put the Loonie on the defensive, though for the time being it has managed to thwart new weakness afterFriday’s melt-down.   USDCAD heads into the North American session flirting with the 1.18 handle, and after the price action seen at the end of last week, still looks like the bulls remain in control.

Further reading:

EUR/USD: Strong Bearish Technical Signal Joins Fundamentals – BTMU

German inflation falls to 0.1% – lowest since 2009