Intraday Market Thoughts

Greece Spooks EUR, GBP Rally Could & Commodities Rebound.

by Ashraf Laidi
May 9, 2011 7:56

Last week's EUR plunge late into Friday's trade following German rumours of of Greece's euro exit overshadowed the better than expected German industrial output data for March, and the positive April US payrolls numbers, with a sharp rise of 244k against an expectation of 160k.

This newspaper report was prompted by an unscheduled and secret meeting of EU finance officials at the weekend to discuss a number of options with respect to the debt situations. Today we could well see the single currency recover some of that ground with the release of European May Investor confidence index data for May which is expected to rise to 14.3 from 14.2.

And It certainly has shaken the complacency of investors who seem to think that any type of restructuring is unlikely, despite the fact that two year Greek yields tell a different story, trading around 25%.

Some reports at the weekend have suggested that Ireland may have managed to renegotiate a reduction in its loan interest rate, subject to approval of member states. Greece may well also have to provide extra collateral if it wants a renegotiation or restructuring of its bailout

Fridays reports have placed the thorny subject of sovereign debt restructurings back at the top of the political agenda and the economic agenda, irrespective of yield differentials.

In an event a number of technical indicators seem to suggest we could see further declines in the euro in the days and weeks ahead, with a bearish weekly candle reversal on the EURUSD confirmed on Friday.

In the UK inflation is back in the news after Fridays UK producer prices came in much higher than expected, driven up by higher clothing and fuel costs to 16.4% YoY, and pushing the pound higher.

This weeks Bank of England quarterly inflation report data is expected to revise inflation expectations higher and growth forecasts lower and this could weigh on sterling as we head into the week, despite its recent recovery against the euro. Cable resistance is seen at 1.6440/70 neckline resistance level which had acted as support until late last week.

The US dollar also spiked higher on the positive jobs report posting a bullish engulfing week on the US dollar index which adds some weight to the bearish signal on EURUSD seen at the end of last week.

It was not such good news for the dollar against the commodity currencies like the Australian dollar which has rebounded strongly on the back of recovering commodity prices and ahead of some key Chinese inflation and trade data out later this week.

By KM - Staff


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