Events in Greece Hurt Risk Appetite
The optimism surrounding the Greece situation slowly eroded as market digested the events of last week and determined that they lacked substance. EURUSD traded down from 1.4300 to 1.4194, while AUDJPY our carry and risk indicator, broke 84.35—a close below will point to deeper correction in the pair and risk correlated trades.
On Friday, markets had finally received some positive headlines out Europe, as the IMF seemed to soften its stance on the strict austerity demand and appears willing to release the next tranche of aid regardless of the outcome of tomorrow’s “no confidence” vote. In addition, the rushed news that Merkel and Sarkozy had reached a “breakthrough”, suggested that EU policymakers were moving towards a higher level of consensus. Perhaps the market was merely blinded by the prospect of a summer weekend, because when Asia kicked off, any residual positive sentiment rapidly disappeared.
The biggest splash of cold water, was news that the Eurogroup would wait until early July before deciding on Greek financing, which further hurt risk appetite. With vivid images of Greek social unrest, and opinion polls suggesting that 50% of Greek voters would reject the current austerity measures as they stand, the prospect of the Tuesday vote passing seems tentative. Clearly the Eurozone Finance Ministers felt that taking the first step towards reconciliation with Greece was not the correct course of action and it should be Greece which needs to move first.
This aloof attitude is a subtle, but important shift in the management for the EU sovereign crisis. Remember the first time around EU policy markets were firmly behind Greece and public statements were geared to present a resolute, undivided front. There is a different feeling this week. There is significant risk that Greece does not pass the vote and EURUSD which has held up surprisingly well, should look to be vulnerable. While this week will have a slew of central bank minutes and meetings, as well as important economic data, they will all take a back seat to developing events in Europe.
The one event that will stay on most traders calendars will be the FOMC rate decision and subsequent press conference. Its general consensus that the FOMC will formally end QE2 at the end of June, however, the Fed will remain active in the markets by reinvesting proceeds of their massive balance sheet (so they really are not completely ending QE). In addition it will be interesting to see if Bernanke mentions the likelihood of QE3. Our thoughts are that it’s too early for such a decision, after the first two rounds provided such little tangible results. The majority of Fed comments have suggested that any further easing would only accompany a serious drop in the economic data and most members have set the bar very high.
The currency to watch will be the CHF. Currently the franc’s short term position seems slightly stretched against the USD and EUR. That said, the risk premium build in the CHF is based heavily on the events in Europe-should we see further proof of events intensifying in Greece or evidence of contagion into other peripherals, watch for EURCHF to test 1.1750.
08:00 EUR Euro-Zone Current Account sa (Apr)
09:00 EUR Euro-Zone Labour Costs (Q1)
15:30 EUR ECB’s Weidmann Speaks
16:00 EUR ECB’s Stark Speaks
17:50 USD Treasury Geithner Speaks
The Risk Today: EurUsd Failure to breach 1.4401 (bearish downtrend ceiling) during Friday risk rally gives this pair a bearish tone. Pair feels heavy today correct further off of Fridays 1.4334 high. Support now stands at 1.4183 (bullish trend support), then 1.4128 (17th June low) and 1.3970 (23rd May low). Should demand actually materialize in this low volume summer Monday 1.4339-60 (17th June high & bearish trend floor) stands as first resistance, then 1.4497 (14th June high.
GbpUsd After a neck breaking fall the pair was finally able to find buyers around 1.6079 and since then has been consolidating. Should regional support at 1.6058-70 (24th May & 16th June low) give, the next support stands at 1.5937 ( 28th March low) than 1.5752 (25th Jan low). Resistance at 1.6200 (17th June high) should cap near term moves, than 1.6224 (16th June high) then a long way up to 1.6442 (14th June high).
UsdJpy Not much action in this pair with daily ranges compressed. Last week’s failure to convincingly break & hold above daily cloud base at 80.89 suggests continued range bound action. Pressure on 80.00 (psychological key support) will tell if we can head back up to daily could covering or should look down towards 79.57 (5th May lows). Resistance stands at 80.68 (17th June high) then 80.89 (cloud base).
UsdChf Todays SNB comments failed to shift trader’s overall bullish CHF sentiment and general risk across the board has the CHF well in demand. We are expecting a continued reversal off 0.8850 (15th June highs) with 0.8443 providing the pairs first minor test. Critical support is located at 0.8328 (6th June low) then below completely uncharted waters. Resistance at 0.8551 (15th June high) should provide the first barrier than 0.8662 (27th May high)
Similar Posts:
- Waiting on Greek Confidence Vote Results
- Markets Focus on Greece
- Uncertainty Around Greece Remains
- Greek Crisis Still Rolling & Evidence of Contagion Mounting
- Safe-Haven Flows Dominate
