Weekly review… Forex Rally on Greek deal that you know won’t succeed

As risk markets once again rallied on the supposed certainty of a Greek debt deal on Monday, something even Angela Merkel expects, its worth remembering this is not the end of the saga by any stretch of the imagination. Indeed the internal strife in Greece seems to have reached a level that has led many politicians to openly admit the Greek bail-out is unsustainable. That the approach of the troika will one day be seen to have engineered this downward spiral in the country matters not at the moment. It seems that those making decisions now feel that even a Greek default can be weathered by the euro zone. They will be proven wrong in some degree but maybe not now and even months, if by some miracle Greece holds together until elections ( that’s if they are allowed to hold them) in April. Some of the economic data on Greece is almost too bad to grasp and really gives an insight into how quickly a developed country can head rapidly towards 3rd world territory. Greece is bankrupt, it can never recover under current plans and the fall- out has not even begun to emerge. The wrath of citizens not just in Greece will be against politicians and bankers who should be very worried when it begins in one country because contagion will occur.Greece has seen a whopping € 60 billion in deposits disappear from their banks as a slow panic has ensued. If that process was to happen in Portugal then elsewhere then we really are in Armageddon territory. Finally we will see the Germans and other rich rally round ,however, if allowed to go too far it may be irrecoverable.

Back to the markets which seem by and large to be in denial of the true picture. Of course equities prices reflect companies who in many cases have very healthy balance sheets unlike their countries. So with US data continuing to support the rally we have seen the US dollar, but particularly Japanese Yen, safe haven flows reverse.

USD/JPY closed at 79.55 EUR/JPY 104.50 and GBP/JPY 126. The only thing I see reversing this will be a Greek default or more Euro-zone problems both on the horizon.EUR/USD seemed less convinced closing at 1.3150 unable to push above 1.32 again.

Monday trading has all the ingredients for a real`seat of the pants trading day` , so buckle up and get ready for it. Huge potential for volatility in forex markets so remember to scale back on your level of risk so that exaggerated moves either way can be used to your benefit. I remain an unrepentant bear of EUR/USD but know we could yet have an aggressive rally if shorts hit the pain barrier. I find it difficult to see levels much over EUR/USD 1.34 and would ,as I have said before, extend sales there.

Its certainly has the feel of a situation where the first move might be wrong. On that basis a fall may be worth buying, a rise selling, provided there is not some major game changing announcement.However, my strategy would mean I would be short or possibly close to square, but not long. That may prove wrong but at least I will be honest to my strong view. There is nothing worse than losing money by changing your mind at the wrong moment by trying to make a quick gain from a counter trend view in a volatile market.

Amidst all the gloom you have to laugh at some of the political manoeuvrings at the moment. Not least Nicolas Sarkozy. Having secured the support of Angela Merkel he now appears to be courting support from, non other than, British pm David Cameron.During something of a `love in´with the British pm he announced that Cameron was right to veto the European Treaty, protecting British interests. Even that he might well have done the same himself. It beggars belief but then again here is a man who´s political career is close to finishing. I would have felt that garnering support from British and German leaders could backfire badly with the French electorate. On which point it seems that no one has addressed the likelihood sorry certainty that an incoming Socialist will tear the original European treaty up thus leaving the Eurozone back in its old mess and more.Mind you, who knows ,by May? What of Greece, Portugal, Spain ,Italy or further afield Syria and Iran. It could yet be Marie Le Pen´s right wing although if Greece is anything to go by it is the socialists who are winning as the capitalist revolt emerges.

Just to add a final fact to this weekends pot,China has announced a further cut to Bank reserve requirements, the second time in 3 months. China is trying to help bank lending along against a background of falling trade and a cooling housing market. Chinas commerce ministry has described the trade outlook as grim and Chinese data may yet prove the biggest market mover.

Headlines

•Germany.. Merkel confident on Greek bailout while her finance minister has renewed a call for an escrow account for bailout funds to be held.

•US.. Congress has passed the payroll tax extension

•US… Leading indicators up 0.4. In line with expectations

•IMF… Rumours that the IMF will contribute just 10% to the €130 billion Greek bailout leaving EZ members with a bigger amount ( headache)

•EU Juncker… Admits that they are far away from a 120% Greek debt to GBP target for 2020. He seems to think that by some miracle they will come up with a solution before Monday whereas the reality is a mile away.( That would put Greece where Italy is now)

•ECB.. Swaps its Greek bonds to avoid that trip to the barbers

•Austria..Finance minister Maria Fekter,”The risk of Greek insolvency is not off the table” . whereas the Irish just think they’re fecked