10:00 GMT- Apr 27 (global-view.com) there seems to have been a mindset change regarding the Greek debt situation this week. Up until now most have been betting when there will be an bailout from the EU and IMF with most, including us, assuming a bailout was eventually coming following a lot of political posturing. It appears now that a debt restructuring is starting to be priced in as part of the plan. Greece not only has to finance its short term needs but also deal with its structural deficits in the future and this is going to be a problem. There are also questions about getting parliamentary approval from all the EU members. There has been chatter today about quiet BIS bids in the EURUSD at 1.3350. There are reports also that Dutch lawmakers have questions similar to those expressed by those in Germany. We don't feel that the EZ opposes a weaker EUR but would like to see any weakness be contained.
Too much is likely to be made of the Wednesday FOMC decision tomorrow. We feel it is the current policy of the Fed not to surprise the markets. Thus no rate changes are seen and the central bank is likely to stick to its extended time period language which is translated to mean no rate changed for about six months, or three to four policy board meetings. We feel that Bernanke will signal a change it its extended period language before the central bank makes a change.
The EURUSD is now down on the day. The GBPUSD is lower, while the EURGBP is down. The status of the Greek request to activate the EU/IMF accord seems to be in limbo. Markets are keeping a sharp eye on Greek credit default swaps.
In the GBP, traders are focused on the May 6 U.K. election. expectations for a close vote have everyone watching election headlines. Polls suggest the odds for a hung Parliament are rising. This is the worst case scenario according to some. If no party wins a clear majority, difficult decisions could be deferred. This uncertainty has the GBP in play.
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. SNB intervention tactics now see the central bank continuously in the markets supporting the EUR vs. CHF. Weakness of the EUR vs. the CHF is a bad omen for the EUR.
The USDJPY pair is easier, and the EURJPY cross is weaker. Ratings agencies say that Japan's public finances are a worry and remain a reminder of their weak finances. Some note that virtually all JGB bonds are owned by the citizens of Japan. The Hatoyama government wants a lower exchange rate and is pressuring the BOJ to promote growth. Ruling party lawmakers want 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. Bank of Canada interest rates could be hiked as early as June 1. FinMin Flaherty and BOC Governor Carney have indicated little concern about CAD strength. A strong currency eases the pressure from the central bank to tighten policy aggressively. Oil and gold are down. We still favor the AUD and CAD fundamentally.
Far East equities closed lower. European bourses are down. U.S. equities are lower. The U.S. 10-yr was last 3.78%, -2 bps. Today sees a 2-yr note auction. Bonds are 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 such as equities falls.
UPCOMING DATA HIGHLIGHTS: In North America , The U.S. Case-Shiller Home Price Index, Conference Board Confidence Survey, Treasury 2-yr auction and API data are due.
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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