16:00 GMT- Apr 23 (global-view.com) The markets are ending a volatile week that centered on a number of ups and downs on Greece on an up note. Friday finally saw the Greek government formally request an activation of aid from the EU and IMF. Soaring bond yields in recent days were the trigger for the request. Our best guess is that worry over the bond markets forced the hand of Germany. This development was seen as a positive in that it brings the debt crisis one step closer to a resolution. The EURUSD is up on the news.
The key German IFO survey released Friday saw another set of very strong data. Eurozone new industrial orders were also exceptionally strong. Absent Greece these data should have been EUR positive. The U.K. saw weaker than expected advance 1Q10 GDP data. Short-covering late in the day gave the EUR a lift It is unclear if Friday marks a turning point for the EUR, but the odds are that Greece has been removed from the table for a while.
The EURUSD has been volatile but is now higher on the day. The GBPUSD is down, while the EURGBP is up. The details of a Greek request to activate the EU/IMF accord has helped the EURUSD. Markets should continue to keep a sharp eye on Greek credit default swaps.
In the GBP, traders are zeroing in on the May 6 U.K. general election. Ongoing expectations for a close vote have everyone watching election headlines. Polls suggest that the odds for a hung Parliament are rising. This is a 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. The SNB has changed its intervention tactics. The SNB has has been in the markets supporting the EUR vs. CHF consistently. 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 quickly returned. Weakness of the EUR vs. the CHF is a bad omen for the EUR.
The USDJPY pair is higher, and the EURJPY cross up sharply. Comments by the rating agency Fitch that Japan's public finances are a worry are a reminder of their weak finances. The Hatoyama government wants an easier exchange rate and it continues to pressure the Bank of Japan to stimulate growth. Ruling party lawmakers (DPJ) have called on the government to push the USDJPY to 120 to combat deflation. Some traders focus intently on the Japan vs. U.S. 2-yr note spread (only the U.S. 2-yr moves much).
The risk trade is off. The commodity currencies (CAD, AUD and NZD) are mixed. The Bank of Canada sent a signal that rates could be hiked as early as June 1. Canadian FinMin Flaherty and BOC Governor Carney have 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 still favor the AUD and CAD fundamentally.
Far East equities closed lower. European bourses were up. U.S. equities are better. The U.S. 10-yr was last 3.81%, +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: Monday in the Far East and Europe will see no major data. In North America, the U.S.will hold a 5-yr TIPS auction.
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. Prior to Global-View.com, he was a forex trader and a private-label forex analyst for a top Fed watching service in NYC. He has been a corporate forex advisor and also worked in international liability management for a major N.Y. money center bank. John holds an MBA from the University of California at Berkeley and a B.A. in International Economics from that school.
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