Intraday Market Thoughts

Euro Swamped by Rumour Greece May Quit Euro

by Ashraf Laidi
May 6, 2011 22:04

The euro fell badly for the second consecutive day on Friday on reports that Greece is considering abandoning the single currency. The USD made some headway and risk appetite was positive after non-farm payrolls. CFTC position data showed dollar shorts at a record.

Der Spiegel reported that Greece is holding secret restructuring meetings in Luxembourg and is considering leaving the eurozone. Greek officials later responded saying the rumour is completely untrue. The report sent EUR/USD as low as 1.4315. Forced liquidation appears to have taken hold and it would be no surprise to see a rebound on Monday. Greece would lose all access to bailouts and a newly issued drachma would be worthless, so the rumour is assuredly bunk.

The US added 244K jobs compared to the 180K expected. The prior two months were also revised higher. On the negative side, the unemployment rate climbed to 9.0% from 8.8%, no change was expected. USD/JPY gained 50 pips immediately after the report but halved those gains by the end of the session. A similar story played out in stock markets as the S&P 500 gained 0.4% on the day (but declined 1.7% on the week).

The leader on the day was the Australian dollar while the euro lagged. Gold rebounded to $1495 after falling as low as $1462 late in yesterdays session. Silver hit a low of $33.05 below rebounding to close higher at $35.63. The precious metal fell a record 27% on the week. The top forex gainer on the week was the yen, followed by the dollar. The euro was biggest laggard followed by AUD.


CFTC positioning data for the that ended Tuesday showed traders piling into long euro positions ahead of the ECB decision. EUR net longs jumped by one-third to +99.5K. Surely, many of those buyers have rushed to the exits in the 500 pip drop over the past two days. Overall USD net shorts fell to a record (dating back to mid-2007). The yen remains in a net short position but it was halved this week. Net longs in AUD and CAD were scaled back while NZD edged higher. Positioning in GBP and CHF remains long and was essentially unchanged.

By AB - Staff


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