Thursday, May 6, 2010

The situation in Greece has hit a fever pitch

The situation in Greece has hit a fever pitch and if anyone had any doubt about the seriousness of the matter, the three lives the current riots have claimed thus far are a very grim reminder. Euro remains under increasing pressure and now has the 1.2800 level within striking distance – a dip below there would open up to the Feb/Mar 2009 pivot near 1.2700 on the follow. The only thing stopping the further collapse at the moment seems to be some supranational buying interest (plunge protection?) and the fact that the SNB still has an enormous bid under EUR/CHF. 

The market will ignore the goings on in economic data land and keep the Eurozone firmly on the radar in the short-term. The headlines thus far have not been pretty. We heard once again that no bailout plan has been proposed for Spain. Rumors were making the rounds that the debt burdened nation would need at least 280 billion euro – which Prime Minister Zapatero firmly denied. We remember the Lehman gang denying their bank was in trouble as well and everyone remembers what happened there. 

In other currencies, USD/JPY made another failed attempt to violate the 95.00 mark topside – printing a 94.99 intraday high for the second consecutive day. Despite the broad strength in the US dollar, the decline in US rates (higher bond prices) is keeping the downside pressure on the pair. The pound continues to hold its own despite a major flight to quality. There is some speculation that the Conservative Party will indeed be able to form a government and thus a "hung" parliament will be avoided. This would ostensibly allow the UK to address it budget issues and help keep the country on its coveted AAA perch. 

Australian retail sales are now the focus now in the Asia session. The market is looking for a 0.7% increase in March on the heels of a -1.4% drop the prior month. Given the sharp decline in the previous month, we could see a larger statistical blip in the number. While this would likely see the Australian dollar trade better bid, the broad sell-off in risk (should it continue) would outweigh any benefit from the better result.