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Euro Remains Volatile Amidst Greek Concerns

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Top Stories

  • Greek official - possible new deal for Greece at Eco Fin Meeting, quickly denied by Greek gov't
  • Australian, Chinese trade data beat
  • Nikkei up .25% Europe up 0.75% on open
  • Oil off $1.50/bbl to $101/bbl
  • Gold at $1513/oz.

Overnight Eco

  • AUD Trade Balance 1.74B vs. 0.53B
  • AUD Annual Budget Release n/a
  • CHF SECO Consumer Climate -1 vs. 10
  • EUR Italian Industrial Production m/m 0.4%
  • EURFrench Industrial Production m/m -0.9%
  • GBP RICS House Price Balance -21% vs. -22% eyed
  • GBP BRC Retail Sales Monitor y/y 5.2% vs. -3.5%

Event Risk on Tap

  • USD Import Prices m/m
  • USD IBD/TIPP Economic Optimism
  • USD Wholesale Inventories m/m

Price Action

  • USD/JPY squeezes higher towards 81.00 on EUR/JPY flows
  • AUD/USD holds support above 1.0700 and targets 1.0800 on better risk flows, data
  • GBP/USD very quiet below 1.6400
  • EUR/USD rallies above 1.4300 in wake of new Greek deal speculation

The EUR/USD seesawed throughout Asian and European session today first tumbling to 1.4270 then rising to 1.4370 then selling off again as the precarious state of Greek finances continued to preoccupy the market. A statement by an unidentified Greek official that a new bailout package valued at approximately 60 billion euros was being prepared for next week's Eco Fin meeting, helped spark a short covering squeeze in the EUR/USD that took it back towards the 1.4400 level at the start of the European open. However, a quick denial by the Greek government prompted a retrace in the pair before it finally stabilized at the 1.4350 level.

The volatility in the EUR/USD underscores the seriousness with which the market is treating the Greek situation and suggests that policymakers will have no choice but to work out some sort of financing arrangement at the Eco Fin meeting next week in order to pacify the capital markets. As we noted earlier however, any arrangement agreed to next week must be comprehensive in nature encompassing Portugal and Ireland as well. If EU official decide to provide preferential terms only to Greece the political difficulties of such a move would be far greater than the economic costs.

On the economic front the news out of Asia was quite positive with both Australian and Chinese Trade Balance printing way above market forecasts. Australian Trade Balance surplus expanded to 1.75B AUD versus 0.49B AUD eyed as the country's terms of trade reached record high. Higher fuel prices drove imports higher by 1.2% but record high coal and iron ore prices helped to offset the increase in crude. The rebound from February's unusual deficit indicates that Australia's natural resource export sector is back on track after the flooding and the cyclone that hurt operations earlier in the year.

Trade from China was better than forecast as well, with Chinese Trade balance printing at 11.4 Billion versus 3.3 Billion projected as exports rose by 29.9% on a year over year basis. Imports were slightly lower than expected at 21.8% versus 28.9% anticipated contributing to the widening of the surplus. The Chinese trade data suggests that global demand remains robust despite escalating energy costs and should prove supportive of the risk trade if it maintains this pace in H2 of 2011.

As we wrote earlier, "The Australian trade data reaffirms RBA's relatively positive outlook and suggests that the central bank will maintain its tightening bias for the foreseeable future." The Aussie held up best throughout the night and could make another run towards the 1.0800 level if the short covering rally in risk FX continues as the day progresses.

The North American calendar is once again relatively quiet with only the import price and wholesale trade on the docket and no doubt the focus of the trade will remain on the other side of the Atlantic. The short covering price action in the EUR/USD suggests that markets are becoming a bit more confident that EU officials will address the periphery debt problem and could push the pair back above the 1.4400 level as the day progresses.

FX Upcoming

Currency GMT EST Release Expected Prior
USD 12:30 8:30 Import Prices m/m 2.7%
USD 14:00 10:00 IBD/TIPP Economic Optimism 40.8
USD 14:00 10:00 Wholesale Inventories m/m 1.0%

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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