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FX Weekly Report (20-06-11): Markets open lower on lack of EU, Greece agreement

The markets opened significantly lower this morning as they began digesting the recently concluded EU finance ministers meeting which took place yesterday. The fact that there was no conclusion to the ongoing discussions regarding the next aid tranche worth EUR12 billion saw currencies and commodities slipping lower against the US Dollar in trading Monday morning. At the time of writing, EURUSD was trading -0.36% on the day and was approaching the 100 day moving average of 1.4160 while GBPUSD & AUDUSD were also trading lower -0.15% and -0.76% respectively. Crude was down more than -1%, posting an intraday low of 90.50.

By Gaurav Kashyap, Alpari ME DMCC

Private investors could be involved in second Greece bailout

Yesterday’s meeting didn’t yield any conclusions, and there won’t be any disclosure on the issue perhaps until the EU summit in Brussels between June23 & 24th, but there was a basic understanding during Sunday’s meeting that private investors could be involved in sharing in the second Greek bailout and this would be on a “voluntary” basis.

Originally, Germany was pushing for the full involvement of private investors in a mandatory bond exchange program which would have seen ratings agencies drop Greece’s rating to default and with German PM Angela Merkel distancing herself from such a solution late last week, the EURUSD was able to rally on Friday, past 1.43 levels.

But that optimism was short lived as risk appetite dropped following no conclusion from yesterday’s meeting. With the formation of a new government under PM Papapandreou, Greece will be stretched hard to pass additional laws to support further austerity measures before the tranche will be confirmed.

Markets to watch Bernanke comments as US data shows slowdown

This week also sees the key FOMC rate decision late Wednesday evening. With the markets largely expecting no changes to the rate, Bernanke’s comments will be closely scrutinized. The US is currently facing higher inflation (last Wednesday’s data showed that YoY Consumer Prices Ex Food & Energy increased to 1.5% act v 1.3% prev while YoY Consumer Prices increased to 3.6% act v 3.2% prev) while a recent string of poorer jobs numbers, manufacturing & production data have seen future growth prospects dampened.

Bernanke finds the US economy in a rather interesting position – higher pricing pressures with slowing growth – and the markets will be paying close attention to his views regarding future growth forecasts. And finally, the summer earnings season kicks off this week, with tech giant Oracle announcing their quarterly results on Thursday.

Crude oil sees price drops in trading

Crude was pummelled in trading this past week, with the West Texas contracted settling 5.98% lower and the Brent Crude contract down 4.40% in trading last week. Still lingering from the aftermath of Opec’s decision two Wednesdays ago which was followed by Saudi Arabia’s announcement to increase their production, the WTI crude oil slipped from a trading band between 97-102 further lower between 90-95 as data kept piling up that the global recovery was running out of steam.

And the bad data was coming thick and fast – amongst the key releases, US retail sales less autos (0.3% act v 0.2% exp / 0.5% prev), lower US PPI data (0.2% act v 0.1% exp / 0.8% prev), and Empire Manufacturing which showed a drop to -7.79 act v 12.00 exp / 11.88 prev.

Risk appetite should remain capped in the lead up to the FOMC decision on Wednesday. Preceding the FOMC decision, we can expect the other main releases to include the Reserve Bank of Australia’s meeting minutes which will be released early Tuesday morning and this will be followed by the Bank of England’s meeting minutes on Wednesday.