20:00 GMT- May 11 (global-view.com) Forex markets grew increasingly skeptical over the day about the European bailout program. Worries that critical German financial support for the plan might not be there has many worried. There are growing concerns in Germany that it will wind up stuck footing the bill for the bulk of the program. Chancellor Merkel no longer has control of the upper house of the Parliament and it cannot be assured that she will have opposition party approval for the plan. Furthermore it has gotten out that the Bundesbank opposed ECB purchases of Eurozone sovereign debt. In short, the deal has begun to fray around the edges. Germany has the deep pockets and has been the lynchpin of the program.
For traders, the best barometers of the state of the markets are equity and forex prices. European equity prices closed positively, but the EUR was weak. This suggests waning confidence in Europe. In the U.K. struggles to form some sort of coalition government grind on. It appears the Liberal Democrats and Conservatives will be forming the next government. A weak government will eventually emerge. There is already talk about a new election before the year is out. PM Brown has already resigned as head of Labour Party.
The EURUSD is down and the GBPUSD is up, while the EURGBP is weaker. All markets are keeping a sharp eye on the short squeeze in European sovereign debt and on the threat of forex intervention..
In the GBP, post-election uncertainty has had the GBP in play, but i is being resolved now. Our bias for the EURUSD and GBPUSD has turned mixed.
The EURCHF is sharply lower. SNB intervention tactics have changed. We will have to see what happens next.
The USDJPY pair is down and the EURJPY cross is sharply weaker. Japanese public finances are a worry. However, virtually all JGB bonds are owned by Japanese. The government wants a lower exchange rate and has pressed the BOJ to promote growth. 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 has been on and off in commodities and the commodity currencies (CAD, AUD and NZD). The commodity currencies are mow widely mixed. The RBA recently raised its cash rate target to 4.50% (+25bp). It also signaled a policy pause. Bank of Canada interest rates are expected to be hiked June 1. Monetary officials are unconcerned about CAD strength. A strong currency eases the pressure on the central bank to tighten. Oil and gold are mixed. We favor AUD, CAD, gold and oil fundamentally.
Far East equities closed lower. European bourses ended up. U.S. equities are higher. The U.S. 10-yr was last 3.53%, -1 bps. Flight to safety demand is back. Bonds are a counter to risk trades because risk investments must 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: Wednesday will see Japanese Leading indicators in Far East trade. In Europe , Eurozone GDP and Industrial Production are due. Also the Bank of England Inflation report is scheduled. In North America , weekly mortgage statistics will be released early. On the NY open Canadian and U.S.visible trade figures will be released. Wednesday sees weekly energy inventories. Also the U.S.will hold a 10-yr 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. Blandis 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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Mon 12 Mar 2018 A 17:00 US- 3-Yr Auction Tue 13 Mar 2018 A 10:00 DE- ZEW Survey AA 12:30 US- CPI A 17:00 US- 10-Yr Auction Wed 14 Feb 2018 AA 12:30 US- Retail Sales A 12:30 US- PPI A 14:30 US- EIA Crude A 17:00 US- 30-Yr Auction Thu 15 Mar 2018 A 12:30 US- Weekly Jobless A 12:30 US- Philly Fed, Empire PMI A 12:15 US- Industrial Production Fri 16 Mar 2018 A 10:00 EZ- final HICP A 12:30 US- Housing Starts/Permits A 14:00 US- prelim Univ of Mich
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