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Euro's Direction Depends on Greece

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Top Stories

  • Euro reverses losses in early Europe on speculation of French-German deal on Greece
  • EZ Trade Balance -2.9B vs. -2.0B
  • Nikkei down -0.64% Europe off -0.76%
  • Oil at $92.94/bbl
  • Gold $1525/oz.

Overnight Eco

  • EUR Euro-Zone Trade Balance s.a. (euros) (APR) -2.9B vs. -2.0B

Event Risk on Tap

  • USD Prelim U. of Michigan Confidence (JUN) expected 74.8

Price Action

  • USD/JPY stops trip a move to 80.30
  • AUD/USD improves to 1.0560 as risk flows pick up
  • GBP/USD rallies to 1.6350 on risk recovery
  • EUR/USD speculation that Sarko and Merkel have a deal takes it above 1.4200

After another downdraft in Asian and early European trade the EUR/USD rebounded above the 1.4200 level on speculation that today's meeting between Nicolas Sarkozy of France and Angela Merkel of Germany will yield a broad based agreement on the issue of Greek sovereign debt. Meanwhile in Greece Prime Minister George Papandreou appointed Evangelos Venizelos to be the next Finance Minister.

Mr. Papapandreou failed persuade respected former European Central Bank vice-president Lucas Papademos to come aboard just before a crucial Franco-German summit to discuss future aid to Athens. In putting Mr. Venizelos who is Mr. Papandreou's main rival within the Socialist party into the post of Finance Minister, the Greek Prime Minister is hoping to secure the party backing to enact the tax rises, spending cuts and sell-offs of public assets required for the EU and IMF bailout. The Prime Minister faces a confidence vote on Sunday that may prove crucial to the whole Greek bailout process.

Clearly European fiscal officials are feeling the pressure as the prospect of a Greek default threatens to unleash the risk of contagion throughout peripheral Europe with Spain of particular concern to the market because it is the fourth largest economy within the EZ and would be nearly impossible to bail out if its sovereign debt comes under pressure.

With no material economic data on the calendar in all of G-20, Greece will continue to be the primary driver of trade for the rest of the day. The price action therefore could become extremely volatile as market participants react to every fresh piece of news from both Athens and Berlin. With expectations now primed for some sort of an agreement from Sarkozy and Merkel by this afternoon, any lack of progress from Berlin could spur a fresh bout of selling as sentiment swings widely.

For now the EUR/USD remains in a broad 1.4150-1.4250 range but any fresh disappointment from Europe could trigger a stampede for the exits ahead of what could prove to be a very politically charged week-end and that in turn could push the EUR/USD towards the 1.4000 level if the Greek debt crisis remains unresolved as the day proceeds.

FX Upcoming

Currency GMT EST Release Expected Prior
USD 13:55 9:55 USD Prelim U. of Michigan Confidence (JUN) 74.8 74.3

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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