German chancellor Merkel backed off the German position that Greek bondholders be forced to bear the burden of a new rescue package and risk appetite around the globe jumped higher. But is this enough to turn the tide in the Euro’s favor?
EU/Greece: Reset the waiting game clock…
The confrontation between the EU and ECB over the role private bondholders should pay in the next Greek rescue was at the center of the most recent spate of fear driving the Euro weaker in recent days, and the clear announcement from the German chancellor that it will adopt the ECB line of “voluntary participation only” in debt restructuring relieves the most pressing immediate issue for European banks and their potential for facing a liquidity challenging event. This saw Euro crosses snapping higher across the board in relief.
The confrontation between the EU and ECB over the role private bondholders should pay in the next Greek rescue was at the center of the most recent spate of fear driving the Euro weaker in recent days, and the clear announcement from the German chancellor that it will adopt the ECB line of “voluntary participation only” in debt restructuring relieves the most pressing immediate issue for European banks and their potential for facing a liquidity challenging event. This saw Euro crosses snapping higher across the board in relief.
While this is important news, there are two key aspects of the situation we must consider here: first, the political turmoil among Greece politicians will need to be resolved and Greece will have to agree to the latest round of austerity measures to move forward. Papandreou has reshuffled his cabinet to get his own party to support him.
More importantly, we need to consider the impossibility of Greece ever repaying its debts in full and the idea that today’s moves (assuming Greece’s political leadership toes the line and conforms to the troika’s requirements for new austerity) is simply another in the long series of moves that merely represent the spirit of “extend and pretend”. When does the game overwhelm its players. Yes, it appears we have reverted a crisis once again – but the clock has merely been reset on the time bomb, and we don’t know for how long – hours, days, weeks or months?
Chart: EURUSD
The EURUSD has snapped back sharply higher after a dip below 1.4100 in yesterday’s trading, but there is a lot of heavy lifting to do if the technicals are to even shift back into neutral here. The first line of resistance has proved to be the previous low from earlier this week just below 1.4300. Beyond that, perhaps the 55-day moving average is the focus for resistance. Tactically, any move back below 1.4200 would look like a bearish reversal of the latest rally move. Headline risk is important at all times, it must be noted!
The EURUSD has snapped back sharply higher after a dip below 1.4100 in yesterday’s trading, but there is a lot of heavy lifting to do if the technicals are to even shift back into neutral here. The first line of resistance has proved to be the previous low from earlier this week just below 1.4300. Beyond that, perhaps the 55-day moving average is the focus for resistance. Tactically, any move back below 1.4200 would look like a bearish reversal of the latest rally move. Headline risk is important at all times, it must be noted!
Is there any other news?
It’s a bit of a challenge to find any other news of import, considering the headline risk coming out of Europe and the coordinated way in which markets are reacting to everything. Remember in the background that we have seen another couple of very worrisome data points out of the US, so the drumbeat of data there is still important. The preliminary University of Michigan confidence reading for June will be interesting to see today: the May reading was actually near the top of the last 12 months’ range, while the Conference Board Confidence reading in May was the lowest since last November.
It’s a bit of a challenge to find any other news of import, considering the headline risk coming out of Europe and the coordinated way in which markets are reacting to everything. Remember in the background that we have seen another couple of very worrisome data points out of the US, so the drumbeat of data there is still important. The preliminary University of Michigan confidence reading for June will be interesting to see today: the May reading was actually near the top of the last 12 months’ range, while the Conference Board Confidence reading in May was the lowest since last November.
In the M&A department, it’s important to note the acquisition by US’ Capital One bank of the Dutch ING Direct in a deal that will include more than $6 billion in cash, which may mean a ruffle or two in the FX market on top of other action.
Looking ahead
This market is clearly a very high energy one, as measured by some of the most recent intraday moves and on the headline risk that seems to have everyone rushing from one side of the boat to the next. Legendary stock market veteran Art Cashin was even out yesterday suggesting that recent market action echoes what was seen in 2008 and even the action leading up to the market crash in 1987. It may pay to keep a larger picture perspective here, and that perspective suggests that there are plenty of reasons for concern on the EuroZone debt front, the US economic front, and the Chinese growth front as well.
Next week is a critical one on the EU front, as finance ministers are scheduled to meet beginning already on Sunday and the main EU summit in Brussels is scheduled to get going later in the week on Thursday evening. The degree of cooperation or lack thereof will be critical for the market’s mood. Going into to next week’s meetings, as one Bloomberg article title from this morning states, the French are “unruffled” by the latest Greek bailout while “German politicians seethe”. Will the politicians of Europe be able to bridge this gap in attitudes?
This market is clearly a very high energy one, as measured by some of the most recent intraday moves and on the headline risk that seems to have everyone rushing from one side of the boat to the next. Legendary stock market veteran Art Cashin was even out yesterday suggesting that recent market action echoes what was seen in 2008 and even the action leading up to the market crash in 1987. It may pay to keep a larger picture perspective here, and that perspective suggests that there are plenty of reasons for concern on the EuroZone debt front, the US economic front, and the Chinese growth front as well.
Next week is a critical one on the EU front, as finance ministers are scheduled to meet beginning already on Sunday and the main EU summit in Brussels is scheduled to get going later in the week on Thursday evening. The degree of cooperation or lack thereof will be critical for the market’s mood. Going into to next week’s meetings, as one Bloomberg article title from this morning states, the French are “unruffled” by the latest Greek bailout while “German politicians seethe”. Will the politicians of Europe be able to bridge this gap in attitudes?
Next week is not a particularly momentous one on the economic data front, but we do have the EU summits and the Fed “rate decision” and latest monetary policy statement as critical inputs in this very critical time for markets as signs of nervousness have jumped. The S&P500 has tested its 200-day moving average for the first time since a couple of weeks after Bernanke’s Jackson Hole speech last August that hinted at the coming of QE2. How appropriate (eerie?) that we are testing this technical level again a couple of weeks before that program’s end…
So as we always say, be very, very careful out there and this may just improve your chances of having a wonderful weekend away from the markets (though don’t stray too far from your news sources ahead of Monday’s opening.
Economic Data Highlights
- Japan May Nationwide Department Store Sales fell -2.4% YoY vs. -1.5% in Apr.
- EuroZone Apr. Construction Output rose +0.7% MoM and fell -2.0% YoY vs. -4.9% YoY in Mar.
- EuroZone Apr. Trade Balance out at -2.9B vs. -2.7B expected and -2.2B in Mar.
- Canada Apr. Wholesale Sales out at -0.1% MoM vs. -0.3% expected
Upcoming Economic Calendar Highlights (all times GMT)
- US Jun. Preliminary University of Michigan Confidence (1355)
- US May Leading Indicators (1400)
- New Zealand Jun. Performance of Services Index (Sun 2230)
- New Zealand Q1 Manufacturing Activity (Sun 2245)
- UK Jun. Rightmove House Prices (Sun 2301)
- Japan May Merchandise Trade Balance (Sun 2350)
- New Zealand May Credit Card Spending (Mon 0300)
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