Hello EU. Greece Calling. We Have Nil Points.

Greece dominates again

Once again Greece became the focal point for the market for much of the week.
Massive pressure in terms of further weakness in the bond market and on credit default swaps was prompted by news that the Greek deficit for 2009 was marked up 12.9 to13.6. To add further pressure Moody´s downgraded  them a notch to A3.
These events finally pushed the Greeks into throwing in the towel and formally requesting EU and IMF help.While this had the effect of helping the Euro recover at present it barely qualifies for the dead cat variety.
The jury is still out and and whatever, actually getting their hands on the funds by May 6th could still prove a tall order.
It remains clear that this cloud will not go away and the whole Euro deficit problem looks likely to weigh on the Euro for some time.That said if the Greeks can resolve temporarily at least the problem then perhaps for the time being they might have seen the worst for their bond markets. Other Euro debtors such as Portugal Ireland and Spain will be anxious that last weeks overspill into their bond markets does not continue.

Elsewhere The Dow Jones recovered earlier losses and this fed through to a better performance for commodity currencies against a much weaker Yen.

As far as the Yen is concerned there seems to be an increasing feeling that some weakness lies ahead and technically signs are building that in the medium term we could well see a move back over 100.
This could all prove wrong if the risk appetite wanes at some stage. However, on balance it seems perhaps one of the clearer signs at the moment.Any move above 94.50 Yen /USD could see a test of 96.50 and further confirmation of the move to 100 plus

Sterling suffered a little at the end of the week finishing at 87.00 Euro. Firstly the Euro bounce back and secondly disappointing Economic data in the form of 1st quarter GDP which came in at just 0.2
With the final countdown to the election I still expect some selling pressure. Views ,however, remain divided with many commentators feeling a hung parliament is in the price. Goldman sachs issued a buy recommendation to clients ,surely they wouldn’t would they.
 

Weekly Forex Update. Goldman Sacked?

Sentiment change swings market back.

After last weekends announcements on Greece and the knee jerk positive move for the Euro things fizzled out and then reversed.

Firstly after initial improvements in Greek bonds and a stronger Euro the market fully digested the continued lack of clarity and reversed both gains.

Fridays shock announcement that the SEC was prosecuting Goldman Sachs for fraud in connection with sales of Mortgage Backed Securities pushed equities lower and led to further strength of the dollar and particularly the Yen
The much known risk averse play kicked in for the first time in some while leaving the Japanese Yen some 2% stronger against the Aust$ and NZ$ and 1% against the US dollar.
The EUR/USD finished much the same as last week at 1.35 having touched almost 1.37 at the beginning of the week.

It remains to be seen if the Goldman issue was merely the catalyst for a perhaps overdue technical correction for equities or whether the markets will shrug this off next week and return to a more positive mood.
It does, however seem likely that the Forex markets will take there lead from equities this week especially as far as the YEN is concerned.

With regard to the Greece situation,the swiftness of the bond markets reaction does not bode well for a happy ending on this story. Furthermore talk of a legal challenge in Germany will only add to what is becoming a really serious threat to the Euro area. Even with IMF and Euro money it appears that the markets remain unconvinced that these measure will prove anything more than a temporary solution to the problems in Greece.However much the Euro area old guard rally around with positive statements about unity and support there really is a growing feeling that the end game could be very different, all be that a while off.

Sterling and the Gilt market seem to have once again escaped unscathed for the week dispite the opinion polls pointing ever more so to a hung parliament. They surely have to have a wobble soon.

Back in the real world most of Northern Europe continues to be stuck without air travel , do I hear a bid for airline shares on Monday.

Weekly Review. Greece: Don´t Call For Me Argentina…

Euro/US Dollar back where it began

The Euro finished the week unchanged against the dollar having recovered its earlier losses. Reports that Germany has finally bowed to pressure and will rubber stamp a bale out at rates around half the current borrowing rate for Greece could well help further advances for the Euro this week.This could well prove to be something of a watershed for the Greek problem.
Don´t Call For Me Argentina….
Some commentators are comparing the situation of Greece with that of Argentina in early 2000. They did indeed go on to default. The market may bide its time but the recent levels of capital fleeing Greece are a pointer to what will likely reemerge at some stage.Can the Greek government sell the public the idea of years of austerity and falls in take home wages which is required. The answer is almost certainly no and the next crisis whenever it arrives could be the one which leads to a Euro exit for Greece.( Remember the expression Rearranging the deckchairs on the Titanic)

Sterling has continued to perform well considering many polls still seem to point to a hung parliament. A workable conservative majority is still likely to produce a knee jerk move higher but could well be short lived.
Neither party seems able to come to terms with the scale of deficit cuts required. Another warning, this time from the IEA (Institute for Economic Affairs) think tank has called for the need for a total overhaul on spending levels. George Soros has concluded that a further devaluation of the pound may be an option the incoming Government may take. In truth it may be that this happens anyway and that eventually the markets as they so often do will force some draconian action on borrowing.

There were no surprises from any central banks last week on interest rates. Only the RBA moving rates to 4.25% from 4 which was expected. Risk appetite remains intact and this could continue the trend for a softer dollar and Yen especially with the aforementioned announcement on a Greek bailout.
The bad news I hear is that large increases paper pulp prices point to big increase in toilet roll prices…………lets hope there are no shocks in the markets.

Sterling Dips on PMI news

Sterling tripped up after poorer than expected UK PMI numbers (Purchasing Managers Index).
The UK currency was down versus the dollar and softer against the euro after a purchasing managers’ survey showed less growth in the UK services sector than was forecast.

March’s PMI number fell to 56.5 from 58.4 in February, in a survey by Markit and the Chartered Institute of Purchasing and Supply. This was a bigger fall than expected.

Output in Britain’s service sector was down due to the weather in a cold January reversing the previous month’s gain.

Sterling was down to around $1.5232 against the dollar- a fall of more than 0.2 percent on the day — from around $1.5280

EUR GBP rose to 87.83p from 87.65p though it was still down 0.4 percent over the day. So a case of bad news from the UK but worse feelings on the Euro. We’d expect the trend to continue (we are bearish on EUR GBP) as the UK election approaches. We expect the Tories to gain an overall majority which should push market in the pound favour.
 

Pre Easter Weekend Report

As we alluded to earlier on in the week, the US dollar continued to move up against the Japanese Yen today. It hit a seventh month high pushed on by a wave of favourable US data. Japanese investors flocked overseaes to invest funds into higher-yielding currencies at the beginning of their fiscal year.

Data reports on the U.S. manufacturing sector suggested that activity increased by its fastest rate in over 5 years. There was some bad news- a small increase in unemployment, but not enough to throw the dollar´s move into reverse.

The U.S. payrolls report is out on Friday, with predictions from the financial sages of 190,000 more jobs created in March. That would likely fuel the dollar higher and strengthen the case for higher U.S. interest rates.

There was also good news from over The Pond with strong manufacturing data from Europe. So the dollar didn´t move against everything and was indeed checked by the pound and the CA $.

Asia also reported some good manufacturing data in China.

EURO STILL BEING BATTERED VS STERLING, Dollar But Cimbs against Yen.

The euro was down at $1.3502 EUR, as analysts continued to worry  about the debt situation in Greece.

The euro was up against the Yen as investors looked for higher returns on their money overseas.

Sterling hit a 5-week high against the euro (89.04 pence EUR/GBP), with the Tories pulling ahead in the polls for this year´s election, meaning political uncertainty is diminishing and the UK government should be able to act fast to get its debt down.

The pound rose against the dollar.

And good news on the Swiss purchasing managers’ index (The SVME Purchasing Managers’ Index -PMI) helped the Swiss franc move to 1.4151 per euro, its best rate since the euro was launched in 1999.

We expect the dollar to continue strengthening against the Euro, and there are some positive signs coming from the UK pound aswell. But don´t forget that they have a rather large collective credit card bill and the days of 0% transfers onto a new MBNA card are over!

The Yen looks shaky, but at some stage it will bounce back as we move away from the start of the Japanese fiscal year. Whether it will be a "dead cat" bounce though, time will tell.