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Euro Tests 1.300 As Voters Reject Austerity

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  • French and Greek election results weigh on risk FX
  • Aussie Retail Sales surprise to the upside
  • Nikkei -2.87% Europe off - 1.37%
  • Oil at $97/bbl
  • Gold at $1639/oz.

Overnight Eco

  • AUD NAB Business Confidence (APR) 0 vs. 4
  • AUD Retail Sales s.a. (MoM) ( MAR ) 0.9% vs. 0.3%
  • AUD Building Approvals (MoM) ( MAR ) 7.4% vs. 3.2%
  • CHF Unemployment Rate (APR) 3.1% vs 3.1%
  • CHF Consumer Price Index (MoM) (APR) -0.1%
  • EUR German Factory Orders s.a. (MoM) ( MAR ) n/a
  • EUR Sentix Investor Confidence (May) -24.5 vs. -15.3

Event Risk on Tap

  • USD Consumer Credit ( MAR ) expected at $9.750B
  • CAD Building Permits (MoM) ( MAR )

Price Action

  • USD/JPY quiet at 79.80
  • AUD/USD off the lows to trade 1.0160 post better Retail Sales
  • GBP/USD quiet at 1.6130
  • EUR/USD breaks 1.3000 but rebounds in early Europe

Risk aversion fears swept the currency market at the start of week's trade in the wake of French and Greek elections that signaled voters in EU are beginning to rebel against the harsh austerity measures imposed on their economies. In France the Socialist candidate Francois Hollande defeated Nicolas Sarkozy with an anti-austerity message, but the true shocker of the night came from Greece where the two main parties that have governed the country since the 1970's failed to obtain 151 seats necessary in order to form a coalition government that would continue the austerity policies imposed by the Troika earlier last year.

According to the final estimates released by the interior ministry and with 66% of the votes counted, New Democracy will get 18.8% of the votes and 108 seats. PASOK, after 38 years of receiving percentages of over 40%, has fallen to third place with 13.3% of the votes and 41 seats versus the 161 seats it obtained in the 2009 elections. The two parties thus have a total of 149 seats, two short of the working parliamentary majority.

The news sent markets into a tailspin in early Asian trade with EUR?USD falling through the they key 1.3000 all the way to 1.2955 before option defense bids ahead of the 1.2950 level helped to stabilize the pair. The euro has since rebounded above the 1.3000 figure once again, but it situation remains precarious as Greek politicians now jockey for power trying to from a working government. Any prospect of a left leaning coalition that would be hostile to the austerity deal struck last year, could send the pair tumbling once again as traders begin to fear the possibility of Greek exit from EU. In fact some analysts have already coined a new term "Grexit" connoting the prospect of such scenario.

Elsewhere in Australia a surprise rebound in Retail Sales helped to lift Aussie above its Friday New York close. Australian Retail Sales rose by 0.9% versus 0.3% eyed driven by spending on new homes, restaurants and shoes. This was the best rise in Retail Sales since April of last year and the third consecutive positive month this year.

The news helped to ease investor concern over another possible rate cut but the RBA in June after the central bank surprised the market with a 50bp cut last week. However, the positive data on the consumer front was offset by weaker news from the labor market where the ANZ Job advertisements declined by -3.1% after rising 0.7% the month prior.

For now the prospect of another imminent rate cut by the RBA remains a push with tomorrow's Trade Balance data likely to be an important data point Australian monetary authorities to consider.

In North American trade today there are no economic reports on the docket with only Consumer credit data due later in the afternoon. Therefore equity flows are likely to drove currency trade at the start of the session, but markets will keep a close eye on the developments in Greece and hint of further political turmoil will likely put fresh selling pressure on the euro with pair plumbing the sub 1.3000 territory once again.

FX Upcoming

Currency GMT EST Release Expected Prior
USD 19:00 15:00 Consumer Credit ( MAR ) $9.750B $8.735B
CAD 12:30 8:30 Building Permits (MoM) ( MAR ) 7.5%

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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