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Weekly Fundamental FX Preview – Weekend Risk is Back with Greek Crisis

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Weekend risk is back on the table as all eyes will be focused on the differences between the Germany and the ECB/France at this weekend's ECOFIN meeting in Luxembourg. Ben Bernanke's 2nd press conference and the FOMC statement will also highlight the week.

As the Greek debt crisis continues to garner market attention the coming week is highlighted by the ECOFIN meeting on Sunday and Monday. European heads are confident that a compromise will be reached by Monday and the next round of funding for Greece will be released by the EU and the IMF. This only became relevant yesterday after the IMF retreated from a previous position that would deny Greece funding should the EU not secure Greece's financial needs for the next 12 months. The decision to release the funding prior to the EU's guarantee comes at a time when the major political parties at stake look to be at an impasse.

Today's meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy helped to achieve a breakthrough between the parties but the key player who has not weighed in today was the ECB. The central bank has made its position clear it is against any involuntary restructuring that would cause a credit event. Nevertheless the markets took this as a positive sign and the euro has temporarily halted its sharp decline.

A roadblock may also have been put up in Greece given the drama that is being played out via internal Greek politics. Greek prime minster George Papandreou's head fake resignation and subsequent reshuffling of his cabinet led to the termination of Greek finance minister George Papaconstantinou. On Tuesday a vote of confidence will be taken and at this time it is unclear if the current administration will survive the vote which may lead to a general election. Greece must still muster enough votes to win approval to qualify for the EU/IMF loan which would require additional austerity measures. One must only look to the public demonstrations/confrontations in the streets of Athens from last week to get an idea of the country's sentiment.

On the other side of the pond come Wednesday the Fed will likely leave Fed Funds rate at its current ultra-low level and perhaps adjust the accompanying FOMC statement with a downgrade of the Fed's economic assessment. However, the main event for the day will be the FOMC press conference to follow. All eyes will turn to the Fed chief as Bernanke will give prepared remarks followed by a subsequent Q&A session with the members of the press. Looking back at the first press conference in April Bernanke gave the green light for dollar selling after signaling the Fed's intention to complete the full $600Bn QE2 program. We shall presume that Bernanke will be questioned regarding the downturn in US economic data and the longshot possibility of QE3.

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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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