Daily GVI Forex Forex View- EU and Greek Concerns Return
The Daily Forex View
EU and Greek Concerns Return
20:00 GMT- Apr 21 (global-view.com) Growing worries about the viability of the EU/IMF broad Greek bailout plan mounted over the early portion of the day on Wednesday. These concerns saw the CDS (Credit Default Spreads) widen to record levels and in turn weigh on the EURUSD. A growing concern is what additional concerns might be waiting in the weeds.
The U.K. today saw another round of better than expected employment data and the latest Bank of England policy policy board minutes. The BOE minutes indicate that some members of the policy board have started to stir about incipient inflationary pressures. Nevertheless, policy tightening still does not appear to be imminent. On the other hand, on Tuesday the Bank of Canada sent a signal that a policy tightening is possible at its next policy decision. This has implications beyond Canada as the Reserve Bank of Australia had already moved to a policy normalization process several months ago. The CAD and AUD have been exceptionally strong this year as a result.
Markets are now in the process of determining which economies will be solid enough next to support a move away from excessive monetary ease, as those currencies are the next candidates for major rallies. It could be the CHF is the next in line for a bounce.
The EURUSD is weaker on the day while the EURGBP is down. The GBPUSD is up. The details of the EU accord to backstop the Greek finances are now being negotiated. IMF issues are being raised as well. Markets are keeping a close watch on the credit default swaps.
In the GBP, U.K. employment data have been clearly improving. Traders are zeroed in on the May 6 U.K. general election. Expectations for a close vote have everyone watching new election headlines. Polls are suggesting that the odds of a hung Parliament are rising. This is the worst case scenario according to some. With no party winning a clear majority difficult decisions that must be made could be deferred. This uncertainty has the GBP in play with negative implications.
Our bias for the EURUSD and GBPUSD remains cautiously bearish. The outlook for the EURGBP is a toss-up.
The EURCHF is continues to trade a narrow range. Some are noting that the SNB has changed intervention tactics. The talk is the SNB has has been in the markets supporting the EUR vs. CHF a lot of the time. There is talk the SNB pulled out of the market for a few moments on Wednesday and this saw the EURCHF gap lower before they returned. Weakness of the EUR vs. the CHF is a bad omen for the EUR.
The USDJPY pair is steady, and the EURJPY cross is down. More Toushin bonds are set for issuance this week and should undermine the unit. The Hatoyama government favors an easier exchange rate and continues to pressure the Bank of Japan to stimulate growth. Junior ruling party lawmakers (DPJ) have called on the government to push USDJPY to 120 to combat deflation. Some traders focus intently on the Japanese vs. U.S. 2-yr note spread (only the U.S. 2-yr moves much).
The risk trade was back on early today but it faded over the morning. The commodity currencies (CAD, AUD and NZD) are now steady to weaker. The Bank of Canada decided to keep rates stable Tuesday, but in its text sent a signal that rates could be hiked as early a June 1. The Bank of Canada Monetary Policy report on Thursday will be closely followed for more information. Canadian FinMin Flaherty has suggested little concern about CAD strength. A strong currency eases the pressure from the central bank to tighten policy aggressively. Oil and gold are up. We favor the AUD and CAD fundamentally.
Far East equities closed mixed. European bourses are down. U.S. equities are mixed. U.S. Treasuries are still watching the psychological 4.00% level in the 10-yr note. The U.S. 10-yr was last 3.75%, -4 bps. Bonds are used as a counter to risk trades because risk investments must somehow be financed. When the cost of money moves up (higher interest rates), the return and allure of risk trades falls.
UPCOMING DATA HIGHLIGHTS: Thursday in the Far East will see Japanese trade data. In Europe , Eurozone PMI data and Swiss trade figures are due. The closely-followed German IFO survey is slated as well. U.K.retail sales data are another highlight. In North America , Canadian leading indicators, U.S. PPI and weekly jobless claims data are released on the open. U.S. Existing Homes Sales will be followed by the Bank of Canada monetary policy report.
See ECONOMIC CALENDAR for a complete list of future forex market events and consensus data estimates. Go to the forex forum for up-to-date market developments and technical trading ideas.
John M. Bland is an author, and co-founder and partner of Global-View.com in 1996. Before that, he was a Vice-President and senior dealer in the fx inter-bank and futures trading arm of the Continental Grain Company in NYC. Previous to that, he was an early member of the Chemical Bank (NYC) corporate advisory service. He also worked in international liability management. John has an MBA from the Hass School at the University of California at Berkeley and a bachelors degree in International Economics from Berkeley.
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